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5 The Tax Review 1 (1944)

handle is hein.tera/tafoutaxt0007 and id is 1 raw text is: VOLUME V                                                                                     JANUARY
No. 1                                                                                           1944

THE TAX REVIEW

Copyright, 1944, by T'I  Foundation, New York, N. Y.
DEBT, TAXATION AND FUNCTIONAL
FINANCE
Vice is a monster of such frightful mien
As to be hated, needs but to be seen;
Yet, seen too oft, familiar with her face,
We first endure, then pity, then embrace.

IF the term deficit finance be substituted for vice in
this stanza from Pope's Essay on Alan, a text is provided
for this essay. When the federal deficits began, they were
hated. Too often democracies have been wrecked on the
rocks of loose fiscal policy. But in time, the face became
familiar. The deficits were endured for a time as a necessary
evil, but we apologized for them and promised to end them
soon. The next stage was pity, because the national income
had not gone up enough to enable us to get rid of the
deficits that had been incurred in the effort to boost the
national income. In other words, we felt sorry that we could
not lift ourselves by the bootstraps.
At last, deficit financing was embraced as a good thing in
itself. Any lingering sense of guilt was removed by the
fiscal medicine men and yarb doctors from abroad and
from our own universities who assured us that we were not
really living in sin.
The first intimation that what had been mistaken for
dissolute fiscal conduct was, in reality, a Puritanical standard
of fiscal behavior, came with the announcement of a new
financial philosophy. This new philosophy was given its
premier before T. N. E. C. Its main tenet is that taxation,
spending and borrowing are to be viewed- as instruments
of policy. The central policy of government is to be such
manipulation of the level of prices, the volume of employ-
ment and the flow of- income as will serve the aims
and purposes of the clique or gang that is doing the
manipulating.

Adam Smith disposed of this kind of paternalism in
the following':
What is the species of domestic industry which
his capital can employ, and of which the produce
is likely to be of the greatest value, every individual,
it is evident, can, in his local situation, judge much
better than any statesman or lawgiver can do for
him. The statesman, who should attempt to direct
private people in what manner they ought to em-
ploy their capitals, would not only load himself
with a most unnecessary attention, but assume an
authority which could safely be trusted, not only to
no single person, but to no council or senate what-
ever, and which would nowhere be so dangerous as
in the hands of a man who had folly and presump-
tion enough to fancy himself fit to exercise it.
The changed position of government which this new
fiscal theory calls for means nothing less than a transition
of political theory from the Anglo-American conception of
government as an institution set up. to perform certain
community services to the Germanic conception of the
state as the master. Instead of men being relatively free
to take risks, to make mistakes, and to live, as Elbert
Hubbard said, so as to be able to look any man in the
eye and. tell him to go to Hell, the people are to be
marshalled, regimented, told when to spend, or to lend to
the government or to pay taxes, according to some master
1. The Wealth of Nations (Cannon Ed.), p. 423.

1

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