The great extensions of government activities in all industrialized countries since the War have not been balanced by an equivalent development of the theory of public finance. The need for analysis of the relation of large government expenditures and taxes to the system of individualist enterprise is urgent.
It is true that many specific inquiries have been made into the repercussions of taxes and tariffs, into the inequalities of incidence as between industries and regions, into government financing, government investment in depression, and so on, but a survey of these attacks reveals the lack of a method adequate to cope with the questions. The existent theoretical structure, established by the classical writers, was evolved to handle a system of public finance and a system of individualist enterprise, which have been greatly modified in the twentieth century. Consequently many of the modern questions confronting economists are really outside the assumptions of classical theory, and are therefore unable to be grasped by the weapons of the classical analysis. Apart from this practical difficulty, it is to be expected that the post-war developments in economic science itself—the new knowledge of monetary systems, of business cycles, of imperfect competition, and of short-time analysis—necessitate a reconsideration of the theory of public finance. In the future the subject-matter of public finance will probably be systematized along these lines, but meanwhile the need is for a sifting of the materials.