"Theory of Financial Illusion" - Amilcare Puviani

"Teoria della illusione finanziaria"
"Die Illusionen in der öffentlichen Finanzwirtschaft"
1903

Seminal work (and Italian book) about Public Finances that, unfortunately, is not easy to locate - and has never been translated to English. The only alternative is the German version, published in 1960.

Some interesting opinions about the author's thoughts ideas and thesis included in the book and about the subject:

 "In 1903, Amilcare Puviani, one of the great personalities of the Italian public finances, published his seminal work Teoria della ilusione finanziaria (Theory of Financial Illusion), which grounded – as mentioned by the title – he theory of fiscal illusion, which later on was adopted and developed by the so-called "Public Choice School". Mentionable in this case is the fact that the Italian theorist introduced the theme of "fiscal illusion" within the larger picture of "political illusion". From the very beginning, we notice that, at the turn of the 20th century, the humankind acknowledged the irrefragable connection between political and economical factors. Moreover, the economical illusion proves to be a component of the political illusion.
.............................................
Coming back to Puviani's theory, let us summarise its main lines by drawing a standard portrait of the taxpayer.
   a) He ignores the types of pays allowed by the public budget;
   b) He does not know the way public expenditure is made;
   c) He ignores the public expenditure quantum and does not check pay dues;
   d) He ignores the timetable of money allotment, be it for a short or for a long term;
   e) He is not aware of the moment when the allotment of public money ceases;
   f) He ignores the goal set by the State when public expenditure is projected and executed;
   g) He ignores the immediate effects of public expenditure;
   h) He ignores the motivation brought in for public expenditure.

Since the second half of the past century, the theoretical minds who framed the thesis of "public choice" have approached the relationship between public debt and the welfare state in terms of fiscal illusion. In point of fact, the governs indebt themselves and spend money easily, almost carelessly, on social assistance. This way, the citizens – also, the virtual voters – are supplied with a makeshift and transitory welfare; on a long - term basis, the public debts appease society and, instead of increasing, they backlash the general welfare."
................................."
http://www.ejst.tuiasi.ro/Files/39/16_Dragulin.pdf
 
 
"Fiscal illusion stems from the study of Amilcare Puviani "Financial theory of illusion"1 (1903) and it is defined as the phenomenon that generates a feeling of easing the tax burden and an increase in social benefits, especially possible in those contexts in which the revenue of the State and the financing of public services are not fully known or controlled by the taxpayer.
Fiscal illusion occurs to leading taxpayers due to the mistaken perception of living in a context where there was a reduction in the overall level of taxation or even an increase in expenditure on public goods provided without any increase in taxation. Fiscal illusion becomes evident in those contexts in which an increase in provided public services is unperceived by economic agents. They do not get the perception that this increase in services is not made up during the same period of taxation, but rather through the use of public deficit. This implies a simple shift of the increase in taxation to future years, or of an increase in the supply of money, that generates inflationary pressures. Such pressures will cause increases in fiscal pressure and tax revenues, but only in future years.
_______________________________
1 The theory of “financial illusion” argued that, through the management of public finance, public rulers were used to allocate a substantial part of public financial resources to the ruling class, without the working classes knowing. Therefore, the latter were mislead by tactics and deception to come to incorrect assessments of the aims of policy choices, for example by letting them perceive a reduction in taxes while these increased."
http://www.bankpedia.org/index.php/en/100-english/f/23225-fiscal-illusion

Yanis Varoufakis - and the "New Deal" of Greece and Europe

Found somewhere in the "Monde Diplomatique" today (or yesterday), an excerpt from the opinion expressed recently by Yanis Varoufakis (new Greek Finance Minister).
Since a long time I hadn't heard this kind of speech (and thought) expressed by politicians of European caliber.

"Dans une interview à laquelle on n’a probablement pas assez prêté attention, Yanis Varoufakis [le ministre des finances grec] lâche une phrase qui vaut son pesant de signification : “nous sommes prêts à mener une vie austère, ce qui est différent de l’austérité”. Et en effet c’est très différent, radicalement différent même. Entre la vie austère et l’austérité, il y a l’abîme qui sépare une forme de vie pleinement assumée et la soumission à une tyrannie technique. Car il est certain que la sortie de l’euro n’aurait rien d’un dîner de gala. Mais c’est faire de la politique, et au plus haut sens du terme, que de prendre à témoin le peuple et de lui mettre en mains les termes de son choix : nous pourrions bien, en effet, être plus pauvres un moment mais, d’abord, sous une tout autre répartition de l’effort, et surtout en donnant à cette “vie austère” la signification hautement politique d’une restauration de la souveraineté, peut-être même d’un profond changement de modèle socioéconomique."

And following its steps, I've found one of his works, called the "Modest Proposal", about the Euro-Crisis. Written, revised and translated with the colaboration of Stuart Holland, James K. Galbraith and Michel Rocard, may be found in the links following bellow:

 
http://yanisvaroufakis.eu/euro-crisis/modest-proposal/

1 - http://yanisvaroufakis.eu/euro-crisis/modest-proposal/prologue/
2 - http://yanisvaroufakis.eu/euro-crisis/modest-proposal/2-the-nature-of-the-eurozone-crisis/
3 - http://yanisvaroufakis.eu/euro-crisis/modest-proposal/3-political-constraints-for-any-solution/
4 - http://yanisvaroufakis.eu/euro-crisis/modest-proposal/4-the-modest-proposal-four-crises-four-policies/
5 - http://yanisvaroufakis.eu/euro-crisis/modest-proposal/5-the-modest-proposal-four-crises-four-policies/

Monde Diplomatique - Mars 2015
"Les Grecs n’ont pas besoin qu’on leur explique la signification du terme « démocratie ». Pourtant, les leçons pleuvent sur leurs têtes depuis qu’ils ont porté au pouvoir une force de gauche déterminée à tourner le dos aux politiques d’austérité qui depuis six ans les tourmentent.
....
Sur un mode arrogant, Berlin mais aussi Madrid, La Haye, Lisbonne et Helsinki expliquèrent que l’alternance à Athènes ne changeait rien, puisque la politique rejetée par les Grecs devrait être poursuivie sans aucune modification. Sur un ton plus doucereux, on susurrait la même chose à Rome, Bruxelles et Paris : « Il faut, estima par exemple le ministre des affaires étrangères français Laurent Fabius, concilier le respect du vote par l’électeur et le respect des engagements de la Grèce en matière de réformes. » Mais tous les gouvernements de l’Union européenne semblent ne se soucier que du second terme de l’équation. Et s’offusquer quand M. Alexis Tsipras insiste pour rappeler le premier.
.......
La Grèce, fait savoir son ministre des finances Yanis Varoufakis, est "déterminée à ne pas être traitée comme une colonie de la dette dont le destin est de souffrir".
..............Mais peu importe, le Gramophone européen ne cesse de répéter : « La Grèce doit respecter ses engagements ! » (lire « Dette publique, un siècle de bras de fer »). Sclérosée dans ses certitudes, la sainte alliance refuse même d’entendre le président des Etats-Unis quand il explique, encouragé dans son analyse par une armada d’économistes et d’historiens : « On ne peut pas continuer à pressurer des pays en dépression. A un moment donné, il faut une stratégie de croissance pour pouvoir rembourser ses dettes»
...........
L’effondrement économique que la Grèce a subi depuis six ans est comparable à celui que quatre ans de destructions militaires et une occupation étrangère avaient infligé à la France pendant la première guerre mondiale.
.............On comprend alors que le gouvernement de M. Tsipras bénéficie dans son pays, y compris à droite, d’un énorme appui populaire quand il refuse de prolonger une politique aussi destructrice. Et de se résigner à survivre « comme un drogué qui attend sa prochaine dose».............
Avec l’Espagne, le Portugal, l’Irlande, le mobile du crime est encore plus sordide. Les populations de ces Etats auraient en effet intérêt à ce que la main de fer de l’austérité cesse enfin de les broyer. Mais leurs gouvernements ont peur ....
.....
Chacun sait en effet qu’à moins de parvenir à « tirer du sang à une pierre », la dette grecque ne sera jamais remboursée. ..........
...........
Et l’avenir fait penser à ce qu’écrivait la philosophe Simone Weil à propos des grèves ouvrières de juin 1936 en France : « Nul ne sait comment les choses tourneront. (…) Mais aucune crainte n’efface la joie de voir ceux qui toujours, par définition, courbent la tête la redresser. (…) Ils ont enfin fait sentir à leurs maîtres qu’ils existent. (…) Quoi qu’il puisse arriver par la suite, on aura toujours eu ça. Enfin, pour la première fois, et pour toujours, il flottera autour de ces lourdes machines d’autres souvenirs que le silence, la contrainte, la soumission » Le combat des Grecs est universel. Il ne suffit plus que nos vœux l’accompagnent. La solidarité qu’il mérite doit s’exprimer en actes. Le temps est compté."

Freedom, Parliamentarism, Civil Rights and Political Rights. - Alfred Fouillée

Alfred Fouillée

"Erreurs sociologiques et morales de la Sociologie"

"Revue des deux Mondes"

1909

“If I make personal use of my right to go and come from Paris to Marseille, I do not prevent you from going from Paris to Marseille; 
the exercise of my civil right does not remove yours. 
But when I send a deputy to the Chamber who will work at your expense for measures you have always protested, this manner of governing myself implies a manner of governing you which distresses you and which could be unjust. 
Civil right is personal freedom; political right is a right over others as well as oneself.”

Political Parties: A Sociological Study of the Oligarchical Tendencies of Modern Democracy - Robert Michels

Direct, or Representative, Democracy  - and the view of
Robert Michels
1915

 ""The technical specialization that inevitably results from all extensive organization renders necessary what is called expert leadership. 

Consequently the power of determination comes to be considered one of the specific attributes of leadership, and is gradually withdrawn from the masses to be concentrated in the hands of the leaders alone. Thus the leaders, who were at first no more than the executive organs of the collective will, soon emancipate themselves from the mass and become independent of its control."

Yet this politically necessary principle of organization, while it overcomes that disorganization of forces which would be favorable to the adversary, brings other dangers in its train. We escape Scylla only to dash ourselves on Charybdis.
Organization is, in fact, the source from which the conservative currents flow over the plain of democracy, occasioning there disastrous floods and rendering the plain unrecognizable.

"Organization implies the tendency to oligarchy. In every organization, whether it be a political party, a professional union, or any other association of the kind, the aristocratic tendency manifests this very clearly. 

The mechanism of the organization, while conferring a solidity of structure, induces serious changes in the organized mass, completely inverting the respective position of the leaders and the led ...

As a result of organization, every party or professional union becomes divided into a minority of directors and a majority of directed."

"With the advance of organization, democracy tends to decline. "

 

"For democracy ... the first appearance of professional leadership marks the beginning of the end, and this ... on account of the logical impossibility of the “representative” system, whether in parliamentary life or in party delegation.
Jean Jacques Rousseau may be considered as the founder of this aspect of the criticism of democracy. He defines popular government as “the exercise of the general will” and draws from this the logical inference that “it can never be alienated from itself, and the sovereign — who is nothing but a collective concept — can only be represented by himself. 
Consequently the instant a people gives itself to representatives, it is no longer free.”
A mass which delegates its sovereignty, that is to say transfers its sovereignty to the hands of a few individuals, abdicates its sovereign functions. For the will of the people is not transferable, nor even the will of the single individual."""Victor Considerant ... also followed in the tracks of Rousseau: “If the people delegate their sovereignty, they resign it. The people no longer govern themselves; they are governed. . . . Then, People, delegate your sovereignty! I guarantee you a fate the opposite of Saturn's: your sovereignty will be devoured by your daughter, the Delegation.”"

"Carlo Pisacane, the theorist of the national and social revolution in Italy, expounds in his "Saggio sulla Rivoluzione" how the men in whose hands supreme political power is placed must, from their very nature as human beings, be subject to passions and to the physical and mental imperfections therefrom resulting.
For this reason the tendency and the acts of their rule are in direct contrast with the tendency and the acts of the mass ... "

"Victor Considérant fiercely opposed the theory that popular sovereignty is guaranteed by the representative system. Even if we make the theoretical admission that in abstracto parliamentary government does indeed embody government by the masses, in practical life it is nothing but a continuous fraud on the part of the dominant class. Under representative government the difference between democracy and monarchy, which are both rooted in the representative system, is altogether insignificant — a difference not in substance but in form. The sovereign people elects, in place of a king, a number of kinglets.Not possessing sufficient freedom and independence to direct the life of the state, it tamely allows itself to be despoiled of its fundamental right. The one right which the people reserves is the “ridiculous privilege” of choosing from time to time a new set of masters."

"To this criticism of the representative system may be appended the remark of Proudhon, to the effect that the representatives of the people have no sooner been raised to power than they set to work to consolidate and reinforce their influence. They continue unceasingly to surround their positions by new lines of defense, until they have succeeded in emancipating themselves completely from popular control. "

. 
"Gaetano Mosca speaks of “the falsity of the parliamentary legend.” He says that the idea of popular representation as a free and spontaneous transference of the sovereignty of the electors (collectivity) to a certain number of elected persons (minority) is based upon the absurd premise that the minority can be bound to the collective will by unbreakable bonds.
In actual fact, directly the election is finished, the power of the mass of electors over the delegate comes to an end.

The deputy regards himself as authorized arbiter of the situation, and really is such. 
If among the electors any are to be found who possess some influence over the representative of the people, their number is very small; they are the big guns of the constituency or of the local branch of the party. In other words, they are persons who, whilst belonging by social position to the class of the ruled, have in fact come to form part of the ruling oligarchy."

"This criticism of the representative system is applicable above all in our own days, in which political life continually assumes more complex forms.
As this complexity increases, it becomes more and more absurd to attempt to “represent” a heterogeneous mass in all the innumerable problems which arise out of the increasing differentiation of our political and economic life.
To represent, in this sense, comes to mean that the purely individual desire masquerades and is accepted as the will of the mass.
In certain isolated cases, where the questions involved are extremely simple, and where the delegated authority is of brief duration, representation is possible. But permanent representation will always be tantamount to the exercise of dominion by the representatives over the represented."