During the early 20th century, economists who held that the Ricardian equivalence theorem was theoretically true could support either sound or functional finance.

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The Ricardian equivalence theorem suggests that it doesn't matter whether a government finances its spending with debt or taxes because the effect on the total level of demand in the economy will be the same. Economists who accepted this as theoretically true could argue for sound finance (balancing the budget) because it avoids debt accumulation, or for functional finance (using fiscal policy to manage demand), believing that the method of financing (debt or taxes) doesn't affect the economy's total demand, allowing for flexibility in policy to achieve economic objectives.

During the Early 20th Century, Economists Who Held That the Ricardian