1 - Public expenditure and state accumulation in theory

Summary

Economists have used a number of different basic ideas to provide their perspective on the phenomenon of public expenditure. For a variety of reasons, some of which will be mentioned shortly, most of these intellectual approaches very quickly run into the sands of irrelevance or absurdity. But some critical comment on them is required to explain whythey have not been delved into and explored at greater length in the bulk of the work which follows. By the same token, some justification is needed for the particular theoretical thread which has been picked up in this work, namely the relationship between public expenditure and state accumulation.

COMMENTS ON ECONOMIC APPROACHES TO PUBLIC SPENDING

The theory of public expenditure best known to the general economist is that of Adolph Wagner, a German thinker of the so-called Historical School, whose influence flourished in the fourth quarter of the last century. Wagner's famous ‘law’ of expanding state activity has, at least at a superficial level, some relevance for present day students of economic development. Wagner predicted that as the process of economic development took place ‘government expenditure must increase at a faster rate than output’. Because of the mistiness of his prose style, the precise formulation of his prediction is controversial, but he is usually understood to mean that government expenditure divided by gross national product (G.N.P.) is a positive function of G.N.P. divided by population.