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266 Annals Am. Acad. Pol. & Soc. Sci. vii (1949)

handle is hein.cow/anamacp0266 and id is 1 raw text is: FOREWORD THE financing of American governments is the financing of our democracy. Originally governments were concerned with providing public safety, justice, a few public works, and limited social services. More recently, with the rise of the modern economy and the financial instability created by recurring wars, govern- ments have been pressed to do something about the problems of unemployment and depression and the related problems of inflation and unstable prosperity. Our governments are now spending at an annual rate of approximately $60 bil- lion, and the level of spending is ever rising. Wars and their attendant costs are primarily responsible for the higher cost of government, the higher taxes, and the tremendous increase in the public debt. During the depression of the 1930's, how- ever, the Federal Government began to pour out vast sums for economic recovery and relief. A system of social security has been established, and public welfare expenditures have increased greatly. The Second World War brought millions of new jobs, civilian and military, and new investment outlets. Unemployment prac- tically disappeared and the national income spurted upward. During the war, however, the Nation was warned by the Keynesian economists that the war and postwar inflation would be succeeded by a period of depression and economic stagnation unless purchasing power were maintained at such a level that the economy would be kept running at a high speed. Only with government leadership, it was urged, could economic stability and growth be realized. The fluctuations in private investment and the lag in consumption expenditures result- ing from the inequality in incomes and excessive saving would cause chronic eco- nomic instability and prolonged unemployment. Meanwhile, the war came to a close and the Nation anxiously entered the post- war transition, fearing that an economic slump might develop. Full employ- ment became an -active issue. After deliberation and debate, the Employment Act of 1946 was passed by Congress to provide administrative facilities for the con- tinuing study of economic conditions. The President now advises Congress of the state of the Nation's economic health and recommends such remedial measures as he considers necessary to correct economic maladjustments. Fortunately, the ex- pected postwar depression has not yet materialized, but the Nation has been plagued by postwar inflation and more recently has been going through a transitional pe- riod of economic readjustment. There has been much discussion and controversy over the appropriate relations of government finance and the economy. Many are fearful of the results of pub- lic planning and control, believing that an expanded and more positive role for government will mean the eventual loss of economic freedom and the disintegra- tion of private enterprise, as well as an excessive centralization of government au- thority and the serious weakening of political liberty. Ours is a mixed economy in which government and capitalistic enterprise are both active, and it is desirable for public and private activity to develop co-operatively along the lines that will assure a steadily rising and equitably distributed national income. Since public spending, taxing, borrowing, and financial administration exert many significant effects on consumption, investment, employment, and economic welfare, some fiscal policy is inescapable. The question then is, What fiscal policy vii

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