PUBLIC ADMINISTRATION 1137

a relationship between knowledge and coordination, similar to that ex-

pressed in Proposition III with respect to leadership:
Proposition V: The extent to which decisions are based upon knowl-
edge about related activities tends to vary directly with the efficiency of
lines of communication between points of decision and points at which
facts are collected and analyzed.
Propositions relating to "horizontal coordination" and the importance
of knowledge as a basis of decision emphasize a phase of administration
which deserves particular attention. Information is basic to any improve-
ment in organization routine; it is essential in order to adapt decisions to
existing routines; and it is the key to development of an efficient system
of communication within an organization. The principles involved suggest
the importance of certain democratic processes within administration,
such as consultation with the minor officials in charge of activities which
will be affected by a contemplated decision, and the use of conferences
with interested parties outside of the administration when decisions may
affect personal rights of citizens.
But it is not the purpose of this article to apply the hypotheses which
have been set forth. A few "axioms" and "propositions" have been pre-
sented in the hope that they will be scrutinized and tested in the light of
experience, that those parts which are found good may be retained while
other parts may be modified or discarded, and that many other hypotheses
may be added thereto. Finally, the writer hopes that, by extension and
improvement of the above method of approach, a body of theory may be
found adequate to support and guide the empirical studies necessary to
the development of what may be called, without apologies, a science of
administration.
EDWIN O. STENE.
University of Kansas.

The Lack of a Budgetary Theory. On the most significant aspect of

public budgeting, i.e., the allocation of expenditures among different pur-
poses so as to achieve the greatest return, American budgetary literature
is singularly arid. Toilers in the budgetary field have busied themselves
primarily with the organization and procedure for budget preparation, the
forms for the submission of requests for funds, the form of the budget
document itself, and like questions.1 That these things have deserved the
consideration given them cannot be denied when the unbelievable resist-
1
See A. E. Buck, Public Budgeting (New York, 1929); J. Wilner Sundelson,
Budgetary Methods in National and State Governments (New York State Tax Com-
mission, Special Report No. 14, 1938); ibid., "Budgetary Principles," Political
Science Quarterly, Vol. 50, pp. 236-263 (1935).
1138 THE AMERICAN POLITICAL SCIENCE REVIEW

ance to the adoption of the most rudimentary essentials of budgeting is

recalled and their unsatisfactory condition in many jurisdictions even now
is observed. Nevertheless, the absorption of energies in the establishment
of the mechanical foundations for budgeting has diverted attention from
the basic budgeting problem (on the expenditure side), namely: On what
basis shall it be decided to allocate x dollars to activity A instead of
activity B?
Writers on budgeting say little or nothing about the purely economic
aspects of public expenditure. "Economics," says Professor Robbins, "is
the science which studies human behavior as a relationship between ends
and scarce means which have alternative uses."2 Whether budgetary be-
havior is economic or political is open to fruitless debate; nevertheless, the
point of view and the mode of thought of the economic theorist are rele-
vant, both in the study of and action concerning public expenditure. The
budget-maker never has enough revenue to meet the requests of all spend-
ing agencies, and he must decide (subject, of course, to subsequent legis-
lative action) how scarce means shall be allocated to alternative uses. The
completed budgetary document (although the budget-maker may be quite
unaware of it) represents a judgment upon how scarce means should be
allocated to bring the maximum return in social utility.8
In their discussions of the review of estimates, budget authorities rarely
go beyond the question of how to judge the estimates for particular func-
tions, i.e., ends; and the approach to the review of the estimate of the
individual agency is generally directed toward the efficiency with which
the particular end is to be achieved.4 Even in this sort of review, budget-
makers have developed few standards of evaluation, acting, rather, on the
basis of their impressionistic judgment, of a rudimentary cost account-
ing, or, perhaps, of the findings of administrative surveys. For decisions
on the requests of individual agencies, the techniques have by no means
reached perfection.6 It is sometimes possible to compute with fair accuracy
2
Lionel Robbins, An Essay on the Nature and Significance of Economic Science
(2nd ed., London, 1935), p. 16.
8
If the old saying that the statefixesits expenditures and then raises sufficient
revenues to meet them were literally true, the budget officer would not be faced by
a problem of scarcity. However, there is almost invariably a problem of scarcit)'
in the public economy—to which all budget officers, besieged by spending depart-
4
ments, will testify. See Buck, op. cit., Chap. 11.
5
The development of standards for the evaluation of the efficiency of perform-
ance of particular functions—entirely apart from the value of the functions—is as
yet in a primitive stage. Such standards, for budgetary purposes at least, require
cost accounting, which implies a unit of measurement. A standard of comparison
is also implied, such as the performance of the same agency during prior fiscal
periods, or the performance of other agencies under like conditions. In the absence
of even crude measurement devices, budgetary and appropriating authorities are
frequently thrown back upon the alternative of passing on individual items—three
 PUBLIC ADMINISTRATION 1139

whether the increased efficiency from new public works, such as a par-
ticular highway project, will warrant the capital outlay. Or, given the
desirability of a particular objective, it may be feasible to evaluate fairly
precisely alternative means for achieving that end. Whether a particular
agency is utilizing, and plans to utilize, its resources with the maximum
efficiency is of great importance, but this approach leaves untouched a
more fundamental problem. If it is assumed that an agency is operating
at maximum efficiency, the question remains whether the function is
worth carrying out at all, or whether it should be carried out on a reduced
or enlarged scale, with resulting transfers of funds to or from other activi-
ties of greater or lesser social utility.
Nor is there found in the works of the public finance experts much en-
lightenment on the question herein considered. They generally dispose of
the subject of expenditures with a few perfunctory chapters and hurry on
to the core of their interest—taxation and other sources of revenue. On
the expenditure side, they differentiate, not very plausibly, between pro-
ductive and unproductive expenditure; they consider the classification of
public expenditures; they demonstrate that public expenditures have been
increasing; and they discuss the determination of the optimum aggregate
of public expenditure; but they do not generally come to grips with the
question of the allocation of public revenues among different objects of
expenditure.' The issue is recognized, as when Pigou says: "As regards the
distribution, as distinct from the aggregate cost, of optional government
expenditure, it is clear that, just as an individual will get more satisfaction
out of his income by maintaining a certain balance between different sorts
of expenditure, so also will a community through its government. The
principle of balance in both cases is provided by the postulate that re-
sources should be so distributed among different uses that the marginal
return of satisfaction is the same for all of them. . . . Expenditure should
be distributed between battleships and poor relief in such wise that the
last shilling devoted to each of them yields the same real return. We have
here, so far as theory goes, a test by means of which the distribution of
expenditure along different lines can be settled."7 But Pigou dismisses the

clerks, two messengers, seven stenographers, etc.—a practice which often causes
exasperation among operating officials. Although our knowledge of budgetary be-
havior is slight, the surmise is probably correct that questions of the efficiency of
operation in achieving a particular end are generally hopelessly intermingled with
the determination of the relative value of different ends. Operating officials often shy
away from experimentation with devices of measurement, but it may be suggested
that measures of the efficiency of performance should tend to divert the attention
of budgetary and appropriating officials from concern with internal details to the
pivotal question of the relative value of services.
6
See, for example, H. L. Lutz, Public Finance.
7
A Study in Public Finance (London, 1928), p. 50. See also E. R. A. Seligman,
1140 THE AMERICAN POLITICAL SCIENCE REVIEW

subject with a paragraph, and the discussion by others is not voluminous.8

The only American writer on public finance who has given extended
attention to the problem of the distribution of expenditures is Mabel
Walker. In her Municipal Expenditures, she reviews the theories of public
expenditure and devises a method for ascertaining the tendencies in dis-
tribution of expenditures on the assumption that the way would be
pointed to "a norm of expenditures consistent with the state of progress
at present achieved by society." While her method would be inapplicable
to the federal budget,' and would probably be of less relevance in the
analysis of state than of municipal expenditures, her study deserves re-
flective perusal by municipal budget officers and by students of the
problem.10
Literature skirting the edges of the problem is found in the writings of
those economists who have concerned themselves with the economic prob-
lems of the socialist state. In recent years, a new critique of socialism has
appeared.11 This attack, in the words of one who attempts to refute it, is
" . . . more subtle and technical than the previous ones, based on the
supposed inability of a socialist community to solve purely economic
problems. . . . What is asserted is that, even with highly developed
technique, adequate incentives to activity, and rational control of popula-
tion, the economic directors of a socialist commonwealth would be unable
to balance against each other the worthwhileness of different lines of pro-
duction or the relative advantages of different ways of producing the same
good."12 Those who believe this problem not insoluble in a socialist econ-
omy set out to answer the question: "What is the proper method of de-
termining just what commodities shall be produced from the economic
resources at the disposal of a given community?"13 One would anticipate

"The Social Theory of Fiscal Science," Political Science Quarterly, Vol. 41, pp. 193-
218, 354-383 (1926), and Gerhard Colm, "Theory of Public Expenditures," Annals
of the American Academy of Political and Social Science, Vol. 183, pp. 1-11 (1930).
• For a review of the literature, see Mabel L. Walker, Municipal Expenditures
(Baltimore, 1930), Chap. 3.
• In this connection, see C. H. Wooddy, The Growth of the Federal Government,
1916-1982 (New York, 1934).
10
In the field of state finance, a valuable study has been made by I. M. Labovitz,
in Public Policy and State Finance in Illinois (Social Science Research Committee,
University of Chicago. Publication pending).
11
See F. A. von Hayek (ed.), Collectivist Economic Planning (London, 1935).
n
H. D. Dickinson, "Price Formation in a Socialist Community," Economic
Journal, Vol. 43, pp. 237-250. See also, E. F. M. Durbin, "Economic Calculus in a
Planned Economy," Economic Journal, Vol. 46, pp. 676-690 (1936), and A. R.
Sweezy, "The Economist in a Socialist Economy," in Explorations in Economics;
Notes and Essays Contributed in Honor of F. W. Taussig (1936), pp. 422-433.
13
F. M. Taylor, "The Guidance of Production in a Socialist State," American
Economic Review, Vol. 19, pp. 1-8 (1929).
 PUBLIC ADMINISTRATION 1141

from those seeking to answer this question some light on the problems of
the budget-maker in a capitalist state. But they are concerned only with
the pricing of state-produced goods for sale to individuals in a socialist
economy. Professor Dickinson, for example, excludes from his discussion
goods and services provided in a socialist economy "free of charge to all
members of society, as the result of a decision, based on other grounds
than market demands, made by some authoritative economic organ of the
community."14 That exclusion removes from consideration the point at
issue. Nevertheless, the critics of socialist theory do at least raise essen-
tially the same problem as that posed in the present discussion; and their
comment is suggestive.
Various studies of the economics of public works touch the periphery of
the problem concerning the allocation of public expenditures. The princi-
pal inquiries have been prosecuted under the auspices of the National Re-
sources Planning Board and its predecessor organizations. These reports,
however, are concerned in the main with the question of how much in the
aggregate should be spent, and when, in order to function as the most
effective absorber of the shocks incidental to cyclical fluctuations. Two
studies, by Arthur D. Gayer and John M. Clark, deal with public works
outlays as stabilizers of the economic order and with related matters.16
These works suggest factors relevant in the determination of the total
amount of the capital budget; but in them the problem of selection among
alternative public works projects is not tackled. In another study, the
latter issue is approached by Russell V. Black from a rich background of
city planning experience, and he formulates a suggestive but tentative
set of criteria for the selection and programming of public works projects.14
Planning agencies and professional planners have been more interested
in the abstract problem of ascertaining the relative utility of public out-
lays than has any other group. The issue is stated theoretically in a recent
report: "The problem is essentially one of the development of criteria for
selecting the objects of public expenditure. As a larger and larger propor-
tion of the national income is spent for public purposes, the sphere of the
14
Op. cit., p. 238. Of Soviet Russia, Brown and Hinrichs say: "In a planned
economy, operating if necessary under pressure to accomplish a predetermined pro-
duction, the decision with regard to major prices is essentially a political one."
"The Planned Economy of Soviet Russia," Political Science Quarterly, Vol. 46,
pp. 362-402 (1931).
16
J. M. Clark, Economics of Planning Public Works (Washington, Government
Printing Office, 1935); A. D. Gayer, Public Works in Prosperity and Depression
(New York, National Bureau of Economic Research, 1935). See also the essay by
Simeon E. Leland in National Resources Committee, Public Works Planning (Wash-
ington, Government Printing Office, 1936).
" Criteria and Planning for Public Works (Washington, National Resources
Board, mimeographed, 1934). See especially pp. 165-168.
1142 THE AMERICAN POLITICAL SCIENCE REVIEW

price system with its freedom of choice of objects of expenditure is more

and more restricted. Concurrently, the necessity for developing methods
by which public officials may select objects of expenditure which will bring
the greatest utility or return and most accurately achieve social aspira-
tions becomes more pressing. In a sense, this constitutes the central prob-
lem of the productive state. If planning is to be 'over-all' planning, it
must devise techniques for the balancing of values within a framework
that gives due regard both to the diverse interests of the present and to
the interests of the future."17 Planning agencies have not succeeded in
formulating any convincing principles, either descriptive or normative,
concerning the allocation of public funds, but they have, within limited
spheres, created governmental machinery facilitating the consideration of
related alternative expenditures. The most impressive example is the
Water Resources Committee (of the National Resources Planning Board)
and its subsidiary drainage-basin committees.18 Through this machinery,
it is possible to consider alternatives in objectives and sequences of ex-
penditure—questions that would not arise concretely without such ma-
chinery. Perhaps the approach toward the practical working out of the
issue lies in the canalizing of decisions through the governmental ma-
chinery so as to place alternatives in juxtaposition and compel considera-
tion of relative values. This is the effect of many existing institutional
arrangements; but the issue is rarely so stated, and the structure of
government, particularly the federal-state division, frequently prevents
the weighing of alternatives.
It may be argued that for the best performance of individual public
functions a high degree of stability in the amount of funds available year
after year is desirable, and that the notion that there is, or needs to be,
mobility of resources as among functions is erroneous. Considerable weight
is undoubtedly to be attached to this view. Yet over periods of a few years
important shifts occur in relative financial emphasis on different functions
of government. Even in minor adjustments, the small change up or down
at the margin may be of considerable significance. Like an individual con-
sumer, the state may have certain minimum expenditures generally agreed
upon, but care in weighing the relative utility of alternative expenditures
17
National Resources Committee, The Future of State Planning (Washington,
Government Printing Office, 1938), p. 19. Mr. J. Reeve has called my attention to
the fact that the problem of allocation of public expenditures has come to be more
difficult also because of the increasingly large number of alternative purposes of
expenditure.
18
For an approach to the work of the Water Committee in terms somewhat
similar to those of this paper, see National Resources Committee, Progress Report,
December, 1938, pp. 29-36. For an example of the work, see National Resources
Committee, Drainage Basin Problems and Programs, 1937 Revision (Washington,
Government Printing Office, 1938).
 PUBLIC ADMINISTRATION 1143

becomes more essential as the point of marginal utility is approached.

Moreover, within the public economy, frictions (principally institutional
in character) exist to obstruct and delay adjustments in the allocation of
resources in keeping with changing wants probably to a greater extent
than in the private economy.
Efforts to ascertain more precisely the relative "values" of public serv-
ices may be thought fruitless because of the influence of pressure groups
in the determination of the allocation of funds. Each spending agency has
its clientele, which it marshals for battle before budgetary and appro-
priating agencies.19 And there are those who might contend that the
pattern of expenditures resultant from the interplay of these forces consti-
tutes a maximization of return from public expenditure, since it presum-
ably reflects the social consensus on the relative values of different
services. If this be true, the more efficient utilization of resources would be
promoted by the devising of means more accurately to measure the politi-
cal strength, of interests competing for appropriations. That the appro-
priation bill expresses a social consensus sounds akin to the mystic doc-
trine of the "general will." Constantly, choices have to be made between
the demands of different groups; and it is probably true that factors other
than estimates of the relative political strength of contending groups fre-
quently enter into the decisions. The pressure theory suggests the po-
tential development in budget bureaus and related agencies of a strong
bureaucracy strategically situated, and with a vested interest in the gen-
eral welfare, in contrast with the particularistic drives of the spending
agencies.
It is not to be concluded that by excogitation a set of principles may be
formulated on the basis of which the harassed budget official may devise
an automatic technique for the allocation of financial resources. Yet the
problem needs study in several directions. Further examination from the
viewpoints of economic theory and political philosophy could produce
valuable results. The doctrine of marginal utility, developed most finely
in the analysis of the market economy, has a ring of unreality when ap-
plied to public expenditures. The most advantageous utilization of public
funds20 resolves itself into a matter of value preferences between ends
lacking a common denominator. As such, the question is a problem in
political philosophy; keen analyses in these terms would be of the utmost
19
See E. B. Logan, "Group Pressures and State Finance," Annals of the Ameri-
can Academy of Political and Social Science, Vol. 179, pp. 131-135 (1935), and
Dayton David McKean, Pressures on the Legislature of New Jersey (New York,
1938), Chap. 5.
20
This matter is really another facet of the problem of the determination of the
"public interest" with which E. P. Herring grapples in Public Administration and
the Public Interest.
1144 THE AMERICAN POLITICAL SCIENCE REVIEW

importance in creating an awareness of the problems of the budgetary

implementation of programs of political action of whatever shade. The
discussion also suggests the desirability of careful and comprehensive
analyses of the budgetary process. In detail, what forces go into the mak-
ing of state budgets? What factors govern decisions of budgetary officials?
Precisely what is the r61e of the legislature? On the federal level, the field
for inquiry is broader, including not only the central budgetary agency,
but departmental budget offices as well. Studies of congressional appro-
priating processes are especially needed.21 For the working budget official,
the implications of the discussion rest primarily in a point of view in the
consideration of estimates in terms of alternatives—decisions which are
always made, but not always consciously. For the personnel policy of
budget agencies, the question occurs whether almost sole reliance on per-
sons trained primarily in accounting and fiscal procedure is wise. The
thousands of little decisions made in budgetary agencies grow by accretion
into formidable budgetary documents which from their sheer mass are
apt often to overwhelm those with the power of final decision. We need
to look carefully at the training and working assumptions of these officials,
to the end that the budget may most truly reflect the public interest.22
V. 0. KEY, JR.
Johns Hopkins University.
21
For such studies, useful methodological ideas might be gleaned from Professor
Schattschneider's Politics, Pressures, and the Tariff.
22
Helpful comments by I. M. Labovitz and Homer Jones on a preliminary draft
of this paper are hereby acknowledged.