The advocates of higher rates are, of course, correct in declaring that the great business prosperity of the years 1915 and 1916 resulted from the unexpected demands in foreign trade growing out of the war, and is not to be credited in large measure to the act of 1913. But reason requires that the same restraint be exercised in crediting to higher protective acts the prosperity which has in some--not all--cases, followed their enactment; and requires further that the present act be not held accountable for the next reaction in trade, whenever it may occur, inasmuch as a reaction would be sure to occur no matter what kind of tariff act we might chance to have at the time.] CHAPTER 16 OBJECTS AND PRINCIPLES OF TAXATION § 1. Public finance as a division of economics. § 2. The police function. § 3. Social and industrial functions. § 4. The enlarging sphere of the state. § 5. Industrial revenues of governments. § 6. Governmental receipts from loans. § 7. Nonrevenue character of receipts from loans. § 8. Revenues from taxation. § 9. Forms of taxation. §10. Defective tax "systems." §11. Various standards of justice suggested. § 12. Social welfare as the aim. § 13. Principles of administration. § 14. Shifting and incidence. § 15. Taxes as costs. § 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.