Democracy in Deficit: The Political Legacy of Lord Keynes
The Old-Time Fiscal Religion
Classical Fiscal Principle
The history of both fiscal principle and fiscal practice may reasonably be divided into pre- and post-Keynesian periods. The Keynesian breakpoint is stressed concisely by Hugh Dalton, the textbook writer whose own political career was notoriously brief. In the post-Keynesian editions of his Principles of Public Finance, Dalton said:
The new approach to budgetary policy owes more to Keynes than to any other man. Thus it is just that we should speak of "the Keynesian revolution." ... We may now free ourselves from the old and narrow conception of balancing the budget, no matter over what period, and move towards the new and wider conception of balancing the whole economy.*6
In this chapter, we shall examine briefly the pre-Keynesian history, in terms of both the articulation of fiscal principle and the implementation of fiscal practice. As noted at the beginning of Chapter 1, the pre-Keynesian or "classical" principles can perhaps best be summarized in the analogy between the state and the family. Prudent financial conduct by the government was conceived in basically the same image as that by the family or the firm. Frugality, not profligacy, was accepted as the cardinal virtue, and this norm assumed practical shape in the widely shared principle that public budgets should be in balance, if not in surplus, and that deficits were to be tolerated only in extraordinary circumstances. Substantial and continuing deficits were interpreted as the mark of fiscal folly. Principles of sound business practice were also held relevant to the fiscal affairs of government. When capital expenditures were financed by debt, sinking funds for amortization were to be established and maintained. The substantial attention paid to the use and operation of sinking funds in the fiscal literature during the whole pre-Keynesian era attests to the strength with which these basic classical principles were held.*7
Textbooks and treatises embodied the noncontroverted principle that public budgets should be in balance. C. F. Bastable, one of the leading public-finance scholars of the late nineteenth and early twentieth centuries, in commenting on "The Relation of Expenditure and Receipts," suggested that
under normal conditions, there ought to be a balance between these two sides [expenditure and revenue] of financial activity. Outlay should not exceed income, ... tax revenue ought to be kept up to the amount required to defray expenses.*8
Bastable recognized the possibility of extenuating circumstances, which led him to modify his statement of the principle of budget balance by stating:
This general principle must, however, admit of modifications. Temporary deficits and surpluses cannot be avoided.... All that can be claimed is a substantial approach to a balance in the two sides of the account. The safest rule for practice is that which lays down the expediency of estimating for a moderate surplus, by which the possibility of a deficit will be reduced to a minimum. [Italics supplied]*9
Classical or pre-Keynesian fiscal principles, in other words, supported a budget surplus during normal times so as to provide a cushion for more troublesome periods. And similar statements can be found throughout the pre-Keynesian fiscal literature.*10
Aside from the simple, and basically intuitive, analogy drawn between governments and individuals and business firms, these rules for "sound finance" were reinforced by two distinct analytical principles, only one of which was made explicit in the economic policy analysis of the period. The dominant principle (one that was expressed clearly by Adam Smith and incorporated into the theory of economic policy) was that resort to debt finance by government provided evidence of public profligacy, and, furthermore, a form of profligacy that imposed fiscal burdens on subsequent taxpayers. Put starkly, debt finance enabled people living currently to enrich themselves at the expense of people living in the future. These notions about debt finance, which were undermined by the Keynesian revolution, reinforced adherence to a balanced-budget principle of fiscal conduct. We shall describe these principles of debt finance and debt burden more carefully in a subsequent section of this chapter.
A second analytical principle emerged more than a century after Smith's Wealth of Nations, and it was not explicitly incorporated into the norms for policy. But it may have been implicitly recognized. It is important because it reinforces the classical principles from a different and essentially political or public-choice perspective. In 1896, Knut Wicksell noted that an individual could make an informed, rational assessment of various proposals for public expenditure only if he were confronted with a tax bill at the same time.*11 Moreover, to facilitate such comparison, Wicksell suggested that the total costs of any proposed expenditure program should be apportioned among the individual members of the political community. These were among the institutional features that he thought necessary to make reasonably efficient fiscal decisions in a democracy. Effective democratic government requires institutional arrangements that force citizens to take account of the costs of government as well as the benefits, and to do so simultaneously. The Wicksellian emphasis was on making political decisions more efficient, on ensuring that costs be properly weighed against benefits. A norm of balancing the fiscal decision or choice process, if not a formal balancing of the budget, emerges directly from the Wicksellian analysis.
Fiscal Practice in Pre-Keynesian Times
Pre-Keynesian fiscal practice was clearly informed by the classical notions of fiscal responsibility, as an examination of the record will show.*12 This fiscal history was not one of a rigidly balanced budget defined on an annual accounting basis. There were considerable year-to-year fluctuations in receipts, in expenditures, and in the resulting surplus or deficit. Nonetheless, a pattern is clearly discernible: Deficits emerged primarily during periods of war; budgets normally produced surpluses during peacetime, and these surpluses were used to retire the debt created during war emergencies.*13
The years immediately following the establishment of the American Republic in 1789 were turbulent. There was war with the Indians in the Northwest; the Whiskey Rebellion erupted; and relations with England were deteriorating and fears of war were strong. Federal government budgets were generally in deficit during this period, and by 1795 the gross national debt was $83.8 million. But by 1811 this total had been reduced nearly by half, to $45.2 million. And during the sixteen years of this 1795-1811 period, there were fourteen years of surplus and two years of a deficit. Moreover, the surpluses tended to be relatively large, averaging in the vicinity of $2.5 million in federal budgets with total expenditures that averaged around $8 million.
The War of 1812 brought forth a new sequence of budget deficits that lasted through 1815. The cumulative deficit over this four-year period slightly exceeded $65 million, which was more than one-half of the cumulative public expenditure during this same period. Once again, however, the gross national debt of $127 million at the end of 1815 was steadily reduced during the subsequent two decades. In the twenty-one years from 1816 through 1836, there were eighteen years of surplus, and the gross debt had fallen to $337,000 by the end of 1836.
John W. Kearny, writing in 1887 on the fiscal history of the 1789-1835 period, reflected the sentiment that the retirement of public debt was an important political issue at that time. The primary vehicle for accomplishing this policy of debt retirement was the Sinking-Fund Act of 1795, as amended in 1802. Under these acts, substantial revenues were earmarked and set aside for debt retirement. Kearny's assessment of the 1795 act expresses clearly the attitude toward deficit finance and public debt that prevailed:
The Act of the 3d of March, 1795, is an event of importance in the financial history of the country. It was the consummation of what remained unfinished in our system of public credit, in that it publicly recognized, and ingrafted on that system, three essential principles, the regular operation of which can alone prevent a progressive accumulation of debt: first of all it established distinctive revenues for the payment of the interest of the public debt as well as for the reimbursement of the principal within a determinate period; secondly, it directed imperatively their application to the debt alone; and thirdly it pledged the faith of the Government that the appointed revenues should continue to be levied and collected and appropriated to these objects until the whole debt should be redeemed. [Italics supplied]*14
The depression that followed the Panic of 1837 lasted throughout the administration of Martin Van Buren and halfway through the administration of William Henry Harrison and John Tyler, terminating only in 1843. This depression seems clearly to have been the most severe of the nineteenth century and has been described as "one of the longest periods of sustained contraction in the nation's history, rivaled only by the downswing of 1929-33."*15 During this seven-year period of economic stress, there were six years of deficit, and the national debt had soared to $32.7 million by the end of 1843.
Once again, as stability returned, the normal pattern of affairs was resumed. Three consecutive surpluses were run, reducing the national debt to $15.6 million by the end of 1846. With the advent of the Mexican-American War, deficits emerged again during 1847-1849, and the gross debt climbed to $63.5 million by the end of 1849. Eight years of surplus then ensued, followed by two years of deficit, and then the Civil War. By the end of 1865, the gross public debt of the United States government had increased dramatically to $2.7 billion.
Once hostilities ceased, however, twenty-eight consecutive years of budget surplus resulted. By the end of 1893, the gross debt had been reduced by two-thirds, to $961 million. The rate of reduction of outstanding debt was substantial, with approximately one-quarter of public expenditure during this period being devoted to debt amortization. Deficits emerged in 1894 and 1895, and, later in the decade, the Spanish-American War brought forth four additional years of deficit. By the end of 1899, the gross national debt stood at $1.4 billion.
The years prior to World War I were a mixture of surplus and deficit, with a slight tendency toward surplus serving to reduce the debt to $1.2 billion by the end of 1916. World War I brought three years of deficit, and the national debt stood at $25.5 billion by the end of 1918. There then followed eleven consecutive years of surplus, which reduced the national debt to $16.2 billion by 1930. The Great Depression and World War II then combined to produce sixteen consecutive years of deficit, after which the gross national debt stood at $169.4 billion in 1946.
Until 1946, then, the story of our fiscal practice was largely a consistent one, with budget surpluses being the normal rule, and with deficits emerging primarily during periods of war and severe depression. The history of fiscal practice coincided with a theory of debt finance that held that resort to debt issue provided a means of reducing present burdens in exchange for the obligation to take on greater burdens in the future. It was only during some such extraordinary event as a war or a major depression that debt finance seemed to be justified.
While the history of our fiscal practice did not change through 1946, fiscal theory began to change during the 1930s. One of the elements of this change was the emerging dominance of a theory of the burden of public debt that had been widely discredited. The classical theory of public debt, which we shall describe more fully in the next section, suggests that debt issue is a means by which present taxpayers can shift part of the cost of government on the shoulders of taxpayers in future periods. The competing theory of public debt, which had been variously suggested by earlier writers, was embraced anew by Keynesian economists, so much so that it quickly became the orthodox one, and well may be called the "Keynesian" theory of public debt. This theory explicitly denies that debt finance places any burden on future taxpayers. It suggests instead that citizens who live during the period when public expenditures are made always and necessarily bear the cost of public services, regardless of whether those services are financed through taxation or through debt creation. This shift in ideas on public debt was, in turn, vital in securing acquiescence to deficit financing. There was no longer any reason for opposing deficit financing on basically moral grounds. This Keynesian theory of debt burden, however, is a topic to be covered in the next chapter; the task at hand is to examine briefly the Smithian or classical theory.
Balanced Budgets, Debt Burdens, and Fiscal Responsibility
Pre-Keynesian debt theory held that there is one fundamental difference between tax finance and debt finance that is obscured by the Keynesians. In the pre-Keynesian view, a choice between tax finance and debt finance is a choice of the timing of the payments for public expenditure. Tax finance places the burden of payment squarely upon those members of the political community during the period when the expenditure decision is made. Debt finance, on the other hand, postpones payment until interest and amortization payments on debt come due. Debt finance enables those people living at the time of fiscal decision to shift payment onto those living in later periods, which may, of course, be the same group, especially if the period over which the debt is amortized is short.
In earlier works, we have offered an analytical defense of the classical theory of public debt, and especially as it is compared with its putative Keynesian replacement.*16 We shall not, at this point, repeat details of other works. Nonetheless, a summary analysis of the basic classical theory will be helpful, since the broad acceptance of this theory by the public and by the politicians was surely a significant element in cementing and reinforcing the private-public finance analogy.
What happens when a government borrows? Before this question may be answered, we must specify both the fiscal setting that is assumed to be present and the alternative courses of action that might be followed. The purpose of borrowing is, presumably, to finance public spending. It seems, therefore, appropriate to assume that a provisional decision has been made to spend public funds. Having made this decision, the question reduces to one of choice among alternative means of financing. There are only three possibilities: (1) taxation, (2) public borrowing or debt issue, and (3) money creation. We shall, at this point, leave money creation out of account, because the Keynesian attack was launched on the classical theory of public borrowing, not upon the traditionally accepted theory of the effects of money creation. The theory of public debt reduces to a comparison between the effects of taxation and public debt issue, on the assumption that the public spending is fixed. The question becomes: When a government borrows, what happens that does not happen when it finances the same outlay through current taxation?
With borrowing, the command over real resources, over purchasing power, is surrendered voluntarily to government by those who purchase the bonds sold by the government, in a private set of choices independent of the political process. This is simply an ordinary exchange. Those who purchase these claims are not purchasing or paying for the benefits that are promised by the government outlays. They are simply paying for the obligations on the part of the government to provide them with an interest return in future periods and to amortize the principal on some determinate schedule. (This extremely simple point, the heart of the whole classical theory of public debt, is the source of major intellectual confusion.) These bond purchasers are the only persons in the community who give up or sacrifice commands over current resource use, who give up private investment or consumption prospects, in order that the government may obtain command over the resources which the budgetary outlays indicate to be desirable.
But if this sacrifice of purchasing power is made through a set of voluntary exchanges for bonds, who is really "purchasing," and by implication "paying for," the benefits that the budgetary outlays promise to provide? The ultimate "purchasers" of such benefits, under the public debt as under the taxation alternative, are all the members of the political community, at least as these are represented through the standard political decision-making process. A decision to "purchase" these benefits is presumably made via the political rules and institutions in being. But who "pays for" these benefits? Who suffers private costs which may then be balanced off against the private benefits offered by the publicly supplied services? Under taxation, these costs are imposed directly on the citizens, as determined by the existing rules for tax or cost sharing. Under public borrowing, by contrast, these costs are not imposed currently, during the budgetary period when the outlays are made. Instead, these costs are postponed or put off until later periods when interest and amortization payments come due. This elementary proposition applies to public borrowing in precisely the same way that it applies to private borrowing; the classical analogy between private and public finance seems to hold without qualification.
Indeed, the whole purpose of borrowing, private or public, should be to facilitate an expansion of outlay by putting off the necessity for meeting the costs. The basic institution of debt is designed to modify the time sequence between outlay and payment. As such, and again for both the private and the public borrower, there is no general normative rule against borrowing as opposed to current financing, and especially with respect to capital outlays. There is nothing in the classical theory of public debt that allows us to condemn government borrowing at all times and places.
Both for the family or firm and for the government, there exist norms for financial responsibility, for prudent fiscal conduct. Resort to borrowing, to debt issue, should be limited to those situations in which spending needs are "bunched" in time, owing either to such extraordinary circumstances as natural emergencies or disasters or to the lumpy requirements of a capital investment program. In either case, borrowing should be accompanied by a scheduled program of amortization. When debt is incurred because of the investment of funds in capital creation, amortization should be scheduled to coincide with the useful or productive life of the capital assets. Guided by this principle of fiscal responsibility, a government may, for example, incur public debts to construct a road or highway network, provided that these debts are scheduled for amortization over the years during which the network is anticipated to yield benefits or returns to the citizens of the political community. Such considerations as these provide the source for separating current and capital budgets in the accounts of governments, with the implication that principles of financing may differ as the type of outlay differs. These norms incorporate the notion that only the prospect of benefits in periods subsequent to the outlay makes legitimate the postponing or putting off of the costs of this outlay. There is nothing in this classically familiar argument, however, that suggests that the costs will somehow disappear because the benefits accrue in later periods, an absurd distortion that some of the more extreme Keynesian arguments would seem to introduce.
The classical rules for responsible borrowing, public or private, are clear enough, but the public-finance-private-finance analogy may break down when the effects of irresponsible or imprudent financial conduct are analyzed. The dangers of irresponsible borrowing seem greater for governments than for private families or firms. For this reason, more stringent constraints may need to be placed on public than on private debt issue. The difference lies in the specification and identification of the liability or obligation incurred under debt financing in the two cases. If an individual borrows, he incurs a personal liability. The creditor holds a claim against the assets of the person who initially makes the decision to borrow, and the borrower cannot readily shift his liability to others. There are few willing recipients of liabilities. If the borrower dies, the creditor has a claim against his estate.
Compare this with the situation of an individual who is a citizen in a political community whose governmental units borrow to finance current outlay. At the time of the borrowing decision, the individual citizen is not assigned a specific and determinate share of the fiscal liability that the public debt represents. He may, of course, sense that some such liability exists for the whole community, but there is no identifiable claim created against his privately owned assets. The obligations are those of the political community, generally considered, rather than those of identified members of the community. If, then, a person can succeed in escaping what might be considered his "fair" share of the liability by some change in the tax-share structure, or by some shift in the membership of the community through migration, or merely by growth in the domestic population, he will not behave as if the public debt is equivalent to private debt.
Because of this difference in the specification and identification of liability in private and public debt, we should predict that persons will be somewhat less prudent in issuing the latter than the former. That is to say, the pressures brought to bear on governmental decision makers to constrain irresponsible borrowing may not be comparable to those that the analogous private borrower would incorporate within his own behavioral calculus. The relative absence of such public or voter constraints might lead elected politicians, those who explicitly make spending, taxing, and borrowing decisions for governments, to borrow even when the conditions for responsible debt issues are not present. It is in recognition of such proclivities that classical principles of public fiscal responsibility incorporate explicit limits on resort to borrowing as a financing alternative, and which also dictate that sinking funds or other comparable provisions be made for amortization of loans at the time of any initial spending-borrowing commitment.*17
Without some such constraints, the classical theory embodies the prediction of a political scenario with cumulatively increasing public debt, unaccompanied by comparable values in accumulating public assets, a debt which, quite literally, places a mortgage claim against the future income of the productive members of the political community. As new generations of voters-taxpayers appear, they would, under this scenario, face fiscal burdens that owe their origins exclusively to the profligacy of their forebears. To the extent that citizens, and the politicians who act for them in making fiscal choices, regard members of future generations as lineal extensions of their own lives, the implicit fears of overextended public credit might never be realized. But for the reasons noted above, classical precepts suggest that dependence could not be placed on such potential concern for taxpayers in future periods. The effective time horizon, both for members of the voting public and for the elected politicians alike, seems likely to be short, an implicit presumption of the whole classical construction.
This is not, of course, to deny that the effects on taxpayers in later budgetary periods do not serve, and cannot serve, as constraints on public borrowing. So long as decision makers act on the knowledge that debt issue does, in fact, shift the cost of outlay forward in time, some limit is placed on irresponsible behavior. That is to say, even in the absence of classically inspired institutional constraints on public debt, a generalized public acceptance of the classical theory of public debt would, in itself, exert an important inhibiting effect. It is in this context that the putative replacement of the classical theory by the Keynesian theory can best be evaluated. The latter denies that debt finance implements an intertemporal shift of realized burden or cost of outlay, quite apart from the question as to the possible desirability or undesirability of this method of financing. The existence of opportunities for cumulative political profligacy is viewed as impossible; there are no necessarily adverse consequences for future taxpayers. The selling of the Keynesian theory of debt burden, which we shall examine in the next chapter, was a necessary first step in bringing about a democracy in deficit.
Fiscal Principles and Keynesian Economic Theory
There was a genuine "Keynesian revolution" in fiscal principles, the effects of which we attempt to chronicle in this book. But we should not overlook the fact that this fiscal revolution was embedded within the more comprehensive Keynesian theory of economic process. As Chapters 3 and 4 will discuss in some detail, there was a shift in the vision or paradigm for the operation of the whole economy. Without this, there would have been no need for the revolutionary shift in attitudes about fiscal precepts.
This is illustrated in the competing theories of public debt, noted above. Analyses of the effects of public debt closely similar to those associated with those advanced under Keynesian banners had been advanced long before the 1930s and in various countries and by various writers.*18 These attacks on the classical theory were never fully effective in capturing the minds of economists, because they were not accompanied by a shift away from the underlying paradigm of neoclassical economics. A nonclassical theory of public debt superimposed on an essentially classical theory of economic process could, at best, have been relevant for government budget making. But the nonclassical theory of public debt advanced by the Keynesians was superimposed on the nonclassical theory of economic process, a theory which, in its normative application, elevated deficit financing to a central role. A change in the effective fiscal constitution implied not only a release of politicians from the constraining influences that prevented approval of larger debt-financed public budgets, but also a means for securing the more important macroeconomic objectives of increased real income and employment.*19 To be sure, it was recognized that deficit financing might also increase governmental outlays, possibly an objective in itself, but the strictly Keynesian emphasis was on the effects on the economy rather than on the probable size of the budget as such. And it was this instrumental value of budget deficits, and by implication of public debt, that led economists to endorse, often enthusiastically and without careful analysis, theoretical constructions that would have been held untenable if examined independently and on their own.
There is, of course, no necessary relationship between the theory of public debt and the theory of economic process. A sophisticated analysis can incorporate a strictly classical theory of public debt into a predominantly Keynesian theory of income and employment. Or, conversely, a modern non-Keynesian monetarist could possibly accept the no-transfer or Keynesian theory of debt burden. The same could scarcely be said for fiscal principles, considered in total. The old-time fiscal religion, that which incorporates both the classical theory of debt and the precept which calls for budget balance, could not readily be complementary to an analysis of the economic process and policy that is fully Keynesian. In terms of intellectual history, it was the acceptance of Keynesian economic theory which produced the revolution in ideas about fiscal principles and practice, rather than the reverse.
The Fiscal Constitution
Whether they are incorporated formally in some legally binding and explicitly constitutional document or merely in a set of customary, traditional, and widely accepted precepts, we can describe the prevailing rules guiding fiscal choice as a "fiscal constitution." As we have noted, thoughout the pre-Keynesian era, the effective fiscal constitution was based on the central principle that public finance and private finance are analogous, and that the norms for prudent conduct are similar. Barring extraordinary circumstances, public expenditures were supposed to be financed by taxation, just as private spending was supposed to be financed from income.
The pre-Keynesian or classical fiscal constitution was not written in any formal set of rules. It was, nonetheless, almost universally accepted.*20 And its importance lay in its influence in constraining the profligacy of all persons, members of the public along with the politicians who acted for them. Because expenditures were expected to be financed from taxation, there was less temptation for dominant political coalitions to use the political process to implement direct income transfers among groups. Once the expenditure-taxation nexus was broken, however, the opportunities for such income transfers were increased. Harry G. Johnson, for instance, has advanced the thesis that the modern tendency toward ever-increasing budget deficits results from such redistributional games. Governments increasingly enact public expenditure programs that confer benefits on special segments of the population, with the cost borne by taxpayers generally. Many such programs might not be financed in the face of strenuous taxpayer resistance, but might well secure acceptance under debt finance. The hostility to the expenditure programs is reduced in this way, and budgets rise; intergroup income transfers multiply.*21
Few could quarrel with the simple thesis that the effective fiscal constitution in the United States was transformed by Keynesian economics. The old-time fiscal religion is no more. But, one might reasonably ask, "so what?" The destruction of the classical principles of fiscal policy was to have made possible major gains in overall economic performance. If so, we should not mourn the passing of such outmoded principles.
Keynesianism offered the promise of replacing the old with a better, more efficient fiscal constitution. By using government to control aggregate macroeconomic variables, cyclical fluctuations in economic activity were to be damped; the economy was to have both less unemployment and less inflation. If interpreted as prediction, the Keynesian promise has not been kept. The economy of the 1970s has not performed satisfactorily, despite the Keynesian-inspired direction of policy.
Notes for this chapter
Hugh Dalton, Principles of Public Finance, 4th ed. (London: Routledge and Kegan Paul, 1954), p. 221.
For a thorough examination of these classical principles and how they functioned as an unwritten constitutional constraint during the pre-Keynesian era, see William Breit, "Starving the Leviathan: Balanced Budget Prescriptions before Keynes" (Paper presented at the Conference on Federal Fiscal Responsibility, March 1976), to be published in a conference volume.
C. F. Bastable, Public Finance, 3rd ed. (London: Macmillan, 1903), p. 611.
For a survey of the balanced-budget principle, see Jesse Burkhead, "The Balanced Budget," Quarterly Journal of Economics 68 (May 1954): 191-216.
Knut Wicksell, Finanztheoretische Untersuchungen (Jena: Gustav Fischer, 1896). Translated as "A New Principle of Just Taxation" in R. A. Musgrave and A. T. Peacock, eds., Classics in the Theory of Public Finance (London: Macmillan, 1958), pp. 72-118.
Numerical details by year can be found in the "Statistical Appendix" to the Annual Report of the Secretary of the Treasury on the State of the Finances (Washington: U.S. Government Printing Office, 1976).
For a survey of our budgetary history through 1958, see Lewis H. Kimmel, Federal Budget and Fiscal Policy, 1789-1958 (Washington: Brookings Institution, 1959).
John W. Kearny, Sketch of American Finances, 1789-1835 (1887; reprint ed., New York: Greenwood Press, 1968), pp. 43-44.
Lance E. Davis, Jonathan R. T. Hughes, and Duncan M. McDougall, American Economic History, rev. ed. (Homewood, Ill.: Richard D. Irwin, 1965), p. 420. See also Reginald C. McGrane, The Panic of 1837 (New York: Russell and Russell, 1965).
See James M. Buchanan, Public Principles of Public Debt (Homewood, Ill.: Richard D. Irwin, 1958); and James M. Buchanan and Richard E. Wagner, Public Debt in a Democratic Society (Washington: American Enterprise Institute, 1967).
For an analysis of the possibilities for debt abuse within a political democracy, see James M. Buchanan, Public Finance in Democratic Process (Chapel Hill: University of North Carolina Press, 1967), pp. 256-266; and Richard E. Wagner, "Optimality in Local Debt Limitation," National Tax Journal 23 (September 1970): 297-305.
For a summary of the literature, see Buchanan, Public Principles of Public Debt, pp. 16-20.
For examinations of this categorical shift in the scope of fiscal policy during the 1930s, see Ursula K. Hicks, British Public Finances: Their Structure and Development, 1880-1952 (London: Oxford University Press, 1954); and Lawrence C. Pierce, The Politics of Fiscal Policy Formation (Pacific Palisades, Calif.: Goodyear, 1971). With reference to Great Britain, Hicks noted:
With reference to the United States, Pierce observed:
Harry G. Johnson, "Living with Inflation," Banker 125 (August 1975): 863-864.
End of Notes
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