p The extensive dissemination of the “pure theory of public finance" in Western economic literature in recent years is quite indicative. The marginalist methods were utilised until recently only for an analysis of market transactions between owners of private goods. But the development of the scientific and technological revolution and the attendant progress in technoeconomic and social interdependence demonstrate, with increasing clarity, the limited possibilities of private capitalist enterprise. The role played by fundamental theoretical studies in the natural sciences, for example, is sharply rising. But the results of such research, which often demands considerable expenditures, cannot serve as the object of an ordinary purchase-and-sale transaction: these results sooner possess the properties of a “public” rather than a private good. As Marx once remarked, the discovered natural law cost never a penny.  [114•1 

p Much of what has been said applies, as pointed out earlier, also to the flow of general technical, economic and other information. Can information about the movement of air masses, obtained with the help of space vehicles or the weather forecasts elaborated on this basis, serve only as the object of private market transactions?

p In a number of cases personal consumption, too, acquires features which are not intrinsic in ordinary individual consumption. For example, as soon as at least one man begins to “consume” radio and TV programmes, any neighbour who has his own set can receive the same programmes free of charge. The forms of acquisition of such services already do not coincide (or at least only partly coincide) with usual purchase-and-sale operations. At the same time, as applied to them, the principles of private capitalist economic activity 115 lose their meaning; a need arises in other measures (criteria) and forms of distribution of society’s resources.

p The conversion of a public good into an object of study has one more quite important aspect. The goods, which could to the utmost degree satisfy the theoretical definition of a public good, could be, for example, pure air, pure water, sufficiently large tracts of forests and parks, and so on. So far the quantity of some of these resources were not strictly limited. So, in accordance with the usual concepts of non-Marxist economic theory, they generally cannot be regarded as an “economic good”. But the numerous works, published in recent years on the problem of cities, demonstrate that questions of the pollution of the atmosphere and water reservoirs, the impermissible level of noise, the rapacious use of land, the disposal of the products of disintegration and combustion, and so on, constitute acute problems in the development of modern soceity. Special (and often considerable) governmental expenditures are required to ensure the general physical conditions for the existence and development of society—pure air, drinkable water, land suitable for life, forest tracts and so on.

p In the pure theory of public expenditure, some of these problems are reflected in quite a peculiar form. At the same time the extension of this theory attests to a certain crisis in traditional microeconomic theory. As compared with the latter, the “pure theory of public expenditure" makes an essential step forward, admitting the inadequacy of private enterprise methods of operating the economy.  [115•1 

p That is why, alongside numerous models of perfect and oligopolistic competition, other sharply differing concepts arise. The new models at the very outset proceed from the need for definite state regulation in the supply of public goods, trying to find criteria of the efficiency of such regulation and specifically to establish the optimal magnitude of government spending.

p It is characteristic that economists adhering to positions 116 of the unrestricted market economy, at once have perceived in the new theory a threat to the fundamental principles of the capitalist economy. Any attempt to replace market processes by state regulation “would necessitate”, an opponent of Samuelson writes, “a direct frontal attack on a vital institution of capitalism—the productivity principle as a basis for income distribution. This principle cannot be scrapped without a social revolution."  [116•1 

p It is indicative that in subsequent articles on this problem Samuelson hastened to make a reservation, assuring his opponents that he by no means is the proponent of a fully state-directed development of the economy.

p For all the ambiguity of the described models, the formal methods of study employed in them are of definite interest. Some methods of such analysis can be utilised (naturally given a critical analysis of their genuine economic content), for the purpose of illustrating interrelations arising in the most general theoretical models of a national economic optimum.

p At the same time any attempt to go beyond the bounds of the general conclusions and to lead the “pure theory of public expenditure" to any practical conclusions, inevitably brings out the internal weaknesses of this concept.

p Complications arise from the very beginning—from the moment the category of a public good is introduced. The point is that the overwhelming majority of goods and services provided by governmental spending actually do not satisfy (or in any case satisfy to an insufficient degree) the general terms of the model. Thus, transfer payments ( pensions, benefits and others) cannot be included among them in general. As for other governmental expenditures, they, as a rule, have sufficiently narrow limits of effective functioning and do not permit an unlimited increase in the number of consumers. Therefore a public good actually turns out to be an abstract theoretical concept which only in very rare cases can be adequately reflected in reality. After the publication of Samuelson’s first article critical remarks 117 were immediately forthcoming which pointed to the artificiality of such a theoretical construction as a public good.  [117•1  Noting that “very few pure public goods exist”, some authors concluded “that the theory based on the concept therefore has very limited applicability".  [117•2 

p In subsequent articles Samuelson partly admitted the complete conventionality of the mechanical division of goods into public and private categories. At the same time, replying to his opponents, he voiced a fully grounded thought: a private good, which plays such an important role in models of perfect competition, is also quite rarely met in pure form in practical life. Somewhat softening former conclusions, Samuelson proposed that the properties of public and private goods be regarded as some kind of “opposite poles" in the total diverse spectrum of goods and services.

p Such an approach undoubtedly makes the theory under examination somewhat more realistic. But its link with the theory of public finance is consequently eroded and the practical conclusions from this concept are even more shaky. If in every good we can find the properties inherent in a private good and at the same time the properties of a public good, why then is a consumer able (and, as assumed by the traditional microeconomic theory, must) buy some goods in the market, while he has to receive others in the form of governmental services? When can a good be regarded as primarily public and where is the divide, beyond which the intervention of the state in the processes of production and distribution of a good becomes an economic necessity?

p Demonstrating the impossibility of ensuring public goods on the basis of voluntary private economic transactions, the new concept of government spending signified an evident step forward as compared with the earlier mentioned interpretation of financial operations as acts of voluntary 118 exchange. “Much of what goes by the name of the Voluntary exchange theory of public finance’ seems pure obfuscation,” Samuelson remarks.  [118•1 

p But casting aside former concepts and going over from primitive equilibrium models to an optimisation model, the “pure theory" in general prefers to avoid questions connected with the characteristic of the concrete mechanism which ensures the maximum production and distribution of public goods. The main information which can be gained from these models does not go beyond the bounds of a peculiar “collective Robinsonade": the initial premises assume the existence of a number of rational consumers and a definite stock of production resources. The whole point is limited to this.

p As for processes which characterise the mechanism of the functioning of the system itself, its economic and political structures, they are completely ignored. To achieve an optimum within the bounds of the model it is only necessary that the government possess sufficient information, first, about the social welfare function and, second, about the system of preferences of society’s every member (the individual consumer appears in this model, according to Samuelson, as a parametrically decentralised bureaucrat). Moreover, the question does not arise, that the government may pursue some tasks which do not coincide with one definite solution of the system. At such a level of abstraction the initial premises of the model resemble, as G. Colm caustically remarks, “the marriage between the ghost of the long-time buried homo economicus with an equally sterile mulier politico".  [118•2  The paucity of the initial premises inevitably imparts to the conclusions of the “pure theory" an excessively general and in a number of cases rather arbitrary character.

p Former theories presupposed that, if prior to effecting governmental financial operations some kind of a “fair” 119 distribution of personal incomes had been achieved, government spending (and the respective tax collections) would not be able to impair it. The “pure theory" has elaborated an apparatus which makes it possible to demonstrate evidently the untenability of such assertions. Distribution and redistribution of incomes (effected either directly in the form of a change in money payments or transition to a new structure of prices) represent for the “pure theory" one of the important aspects of the optimisation process itself.  [119•1  But the extremely abstract nature of the model permits of no answer to the question, how in practice to redistribute the national income and what sections of the population are interested in one or another government expenditure. The “pure theory" in fact also avoids these questions, imparting to the entire problem a strictly normative nature, and simply relegates it to another sphere—the sphere of analysis of the social welfare function. However not only the practical elaboration but even the most general theoretical definition of the social welfare function encounters exceedingly serious difficulties.

p There is just as little clarity on the question, how a government can obtain information about the system of individual preferences. The point is that because of the specific properties of a public good the process of “revealing preferences" in the course of market exchange becomes impossible. At the same time, here, the ordinary methods of polling the consumers cannot be successful.

p Since every consumer in any case can obtain an equal share of a public good, it is to his benefit to minimise his needs (and correspondingly, the money evaluation of this good). After all, these evaluations must be taken into 120 account, in one or another way, in distributing the burden of taxation and there is every reason for assuming that the biggest contribution will have to be made by those groups of the population whose revealed needs are more urgent.

These features impart to the “pure theory of public expenditure" the nature of an insufficiently elaborated formal hypothesis. Notwithstanding Samuelson’s two repeated attempts at explaining his concept the “pure theory" “is still . . . something of an enigma to most economists, though it is nevertheless felt to be of considerable importance”, one of the active proponents of this theory admits.  [120•1