Sec. 14. Shifting and incidence. Sec. 15. Taxes as costs.

Sec. 1. #Public finance as a division of economics.# Men live together
in politically organized societies which employ public officials as
agents to carry on the functions of government. Every governmental
unit, large or small, may be viewed not only as a political body,
but as an economic enterprise. Each has its economic aspects, such
as receipts and expenditures, employer and employee, borrowing and
lending, etc. Each political unit is in this sense "an economy." The
study of the public economy, of the economic aspects of government as
distinguished from its political aspects, constitutes the science of
public finance, an important division, tho not the whole, of political
economy.

The primary fact determining the public finances is the extent of the
sphere of "the state," meaning by the state the totality of political
powers and functions in a community. There are two typical ideals of
a state, each with corresponding functions: the ideal of the police
state, and that of the social-industrial state. In fact every system
of government provides for the exercise of both functions in some
measure. The police function is primary. All governments alike
exercise it, but they differ most in respect to the degree in which
they exercise the social-industrial functions.

Sec. 2. #The police function.# The police function is that of public
defense and the maintenance of domestic order. In family or
patriarchal communities all share a common income and combine in the
common defense, but self-preservation often has compelled such small
communities to form a larger, stronger state for the common defense.
Public defense requires sacrifice of some independence on the part of
the family and of the individual. Personal service in the field gives
place later in some measure to the payment of taxes, so that a regular
income may permit the government to attain a more regular, continuing,
and perfect organization of military forces.

As political unity and power grow, the citizens need less often
protection against foreign foes, and they need more often, relatively,
defense against the aggressions of some of their own countrymen. The
preservation of domestic order requires police, courts of justice, and
other agencies. The ideal of the anarchist to do without government
is nowhere realized. Everywhere there must be government to preserve
peace and to protect property. Unfo