duction, and keep down wages. The fact is, the trusts to
date have paid as high wages as the lesser corporations ;
and when it is observed that there is an opportunity to pay
higher wages there than elsewhere, no doubt wage-earners
will receive their full share of the business. Wages are
certainly higher in proportion to interest and profits under
the higher organization of industry than under the lower,
where there were many competing groups. The real truth
460 ECONOMICS.
about the trust is that it becomes a great corporation which
will terrify us by its size, but which may be regulated by
careful legislation so that its dangers may be turned into
benefits to the people.
The United States enacted an anti-trust law in 1890,
which declares that combinations, or contracts in the form
of trusts or otherwise, or even a conspiracy against trade
or commerce throughout the several states of the Union
or with foreign nations, was illegal ; and insisted that every
person or combination of persons who attempt to monopo-
lize any particular trade or commerce among the several
states is guilty of a misdemeanor. Many states also have
attempted to make laws against trusts, and have succeeded
at least in bringing before the people the subject of trusts,
and in creating a great deal of discussion as to its nature,
benefits, and dangers.
" Government by Injunction."
The anti-trust laws and interstate commerce act have
been responsible for introducing a new form of regulation,
called "government by injunction." It is simply the en-
largement of the restraint which is exercised to prevent
certain acts of individuals which are contrary to law. It
is used largely for the control of labor organizations. This
has been extended to apply to parties engaged in strikes.
If strikers conduct themselves so as to restrict trade or
commerce among the states, they are guilty of violation of
the law. The injunction was used in 1894 merely to
facilitate the application of these laws and to prevent their
violation. The anti-trust law of the United States and of
the various states would include labor organizations under
ECONOMICS. 461
its operations; therefore these laws are far-reaching, and
have a tendency to show the magnitude of the trust ques-
tion and its regulation.
Most of the trusts formed are broken down or will break
down; many are being formed now on a fictitious basis,
developing a great volume of stocks and industrials which
sooner or later must lead many to failure. Many which
survive the shock of public opinion or adverse legislation
will pass into the form of gigantic corporations, whose
actions will be amenable to the law. While the rapid
development of trusts has caused unnecessary alarm^
they, like other forms of industrial life, need regulating
by the laws of the United States and the various states
thereof. The courts and the legislative power, if properly
directed, will certainly regulate trusts so that they will
prove a benefit rather than a detriment to the people at
large. A uniform tax, if properly levied, would bring
these organizations into subjection to the will of the people.
A tax which would destroy the extra business profit gained
thereby would be not only constitutional, but effective in
the regulation of trusts. It would be constitutional be-
cause it would be attacking a certain form of trusts, and
such a tax would come in under the police regulation.
It is a question which the modern student must examine
very carefully. Whether eventually it will lead to social-
ism, no one can tell; but the author apprehends that it
will not.
State Socialism.*
Some go so far as to advocate government ownership
of all industries, all lands, mines, manufactories, means
* See Chapter VIII, Bk. II, Part n.
402 ECONOMICS.
of transportation, stores, and in fact that all industries
should be placed under the state management, and that all
persons should be employed by the state, each then receiv-
ing his remuneration from one central authority. This
is not at all necessary for the security of economic or in-
dustrial freedom. It is also accompanied by many dan-
gers, from the fact that no formula will cure the selfish-
ness of human beings, and that state socialism would
be merely the means of concentrating such selfishness.
Power given to the people in this manner to regulate all
industries would end only in the few regulating the many,
with the result of a revolution on the part of the many.
Significance of Public Economics.
Public economics have become very important in mod-
ern industrial life. It is impossible to consider private
economics without coming in contact with the relations
of the state to trade and industry. No persons can justly
be considered well versed in political economy, nor indeed
understand the full relations of the people to one another,
without a full consideration of public economics.
ECONOMICS. 463
CHAPTEK III.
TAXATION AND EEVENUE.
Relation of Taxation to Private Economics.
The question of taxes is one of distribution, generally
speaking, because it must be considered as one of the ways
in which the surplus product is disposed of. Also, it may
be considered as the means of a part of production, inas-
much as it stimulates production and the producer must
enter it as one of his necessary expenses. Burdensome
taxes may oppress industries and prevent the development
of economic life. A tax that is not burdensome may do
nothing more than stimulate the extra energy necessary
for the increased production to cover the amount of the
taxes.
Taxation a Means of Improving Economic Processes.
Because of the expenditures of the government in main-
taining roads, promoting justice and equality, and pro-
tecting life and property, taxes are among the best invest-
ments for the improvement of economic processes. While
we may speak of private economics and the great laws of
supply and demand, we must understand that these laws
would not develop without proper governmental protection,
and that taxes are absolutely essential for the development
of all economics. Especially is this so when we consider
public economics ; for we find the tax system closely re-
lated to public economics. We cannot escape its use or
464 ECONOMICS.
its importance under such circumstances. Taxes should
be administered with a great deal of care, and their as-
sessment and collection and expenditure more carefully
guarded than almost any other public institution.
Definitions.
Taxes have been defined as forced contributions of the
people for the support of the government. They are not
debts in the ordinary sense of the word, for they are not
contracted by the payer. Neither are they paid for pro-
tection of life and property, but are placed in the general
fund for government disbursement. As there is only one
party to the transaction, they are called one-sided trans-
fers, or forced contributions.
Judge Cooley defines taxes as "being the enforced pro-
portional contribution of persons and property levied by
the authority of the state for the support of the government,
and for all public needs." This definition upon the whole
is correct from an economic standpoint, with the exception
that taxes are sometimes levied, not for the purpose of pub-
lic need, but for private appropriation ; but if we include
in all public needs all public expenses, or those funds
which the government needs for carrying out all the func-
tions of government, then the definition is correct. For,
indeed, the constitution of New York provides that "the
assent of two-thirds of the members elected to each branch
of the legislature shall be requisite to pass a bill appropri-
ating the public moneys for local or private purposes."
Paul Leroy-Beaulieu, in his Traite de la Science des
Finances, defines taxes in these simple words: "Taxes
are simply contributions demanded of citizens as their
ECONOMICS. 465
share of the expenses of the government." And in a more
elaborate manner, he continues on a subsequent page:
"Every contribution regularly demanded of the citizens by
the stated authorities of the land for meeting the expenses
of the government, is a tax." Again, if we are to take
this definition in its full meaning, we must include in that
term "expenses of the government," all expenses of the
government in fulfilling its legitimate function as a rep-
resentative of the nation. We must also say, in addition
to this, that taxes are sometimes levied for the purpose
of encouraging manufactures, as in the case of the pro-
tective tariff; for the sake of rendering void a law, as in
the case of the Federal taxes on state bank notes, for sup-
pressing their circulation ; or, in the case of the extensive
taxes on whisky and tobacco, for the purpose of suppress-
ing vice. So that, in the definition, taxes may mean some-
thing more than the collection of revenue for the bare
support of the government machinery.
There is a legal fiction that taxes are given in exchange
for protection; but it will be noticed that the sovereign
state demands this contribution of citizens regardless of
any value which may come to the citizen in return for the
contribution. The law, itself, always fails to recognize
in taxation any of the principles which apply to purchase
or sale and to contracts and debts resulting therefrom.
But do not taxes, in an indirect way, benefit the tax-payer ?
Certainly they do, but not in a way similar to that implied
in a contract arising through purchase or sale. While
there is but one party to the proceeding, the other party
may, in an indirect way, on account of the keeping up
466 ECONOMICS.
of social organization and the improvement of the means
of creating and holding property, reap a just reward in
this general return. But suppose a person says, "I do not
want to be taxed, and I'll not enter into this contract; I
don't want to be protected, I can take care of myself."
Does the state pay any attention to him, and release him
from his share of the obligation ? No ; he is a part of the
great social organization, which has determined by long
custom, common consent, and legal authority, that a cer-
tain amount of funds shall be collected from each indi-
vidual citizen according to his person or his property,
and that these common funds shall be expended for the
general use of the community; and as long as he remains
in a community the individual must pay the taxes.
There is sometimes an assertion made in this connec-
tion, that taxes, though paid into the public treasury, will
in time turn to the pockets of the tax-payer. But this is
a false supposition, if we try to make it specific. Suppose
a farmer pays $50 in taxes. In order to get this $50 he
sold the produce off his farm. Now, if the government
does not lay out the $50 in farm produce, it will not revert
to the farmer. Suppose the government does expend $50
for this same farmer: it will do it by purchasing $50
worth of produce; that is, the tax-collector, the agent of
the government, says: a You may have your money back
by paying me its equivalent, $50 in produce." Upon this
basis we have an extended argument that the keeping of
soldiers and sailors will increase the demand for products,
and thus will enhance the general welfare of the commu-
nity. But this is only a nominal market and not a real
ECONOMICS. 467
market. To keep useless industries for the sake of enlarg-
ing the market is a false theory. The only way in which
taxes can help industry by the expenditure of funds, is
to make a better system of communication, to keep better
order, or to bring about favorable conditions of business.
So, also, for the protection idea. The person who pays
the least taxes may sometimes require the greater protec-
tion of life and property, and he who pays most may be
in a position to better protect himself and his property
than he who pays little.
Purposes of Taxation.
Taxation, then, though it is easily defined and seems a
simple thing, becomes of great magnitude when we begin
to inquire into the philosophy of its existence, into all the
relations to which it gives rise between the governing and
the governed. It is a question of supreme importance,
of far-reaching consequences. " Taxation may create
monopolies, or it may prevent them ; it may diffuse wealth,
or it may control it ; it may promote labor or equality of
rights, or it may tend to the establishment of tyranny and
despotism ; it may be used to bring about reform, or it may
be used to aggravate existing grievances and foster dis-
sensions between classes; taxation may be so contrived
by the skillful hand as to give free scope and every oppor-
tunity for the creation of wealth or for the advancement
of all true interests of states and cities, or it may be so
shaped by ignoramuses as to place a dead weight upon a
community in the race for industrial supremacy." (K.
T. Ely.) ';
Taxes, then, have for their purpose the general good
468
ECONOMICS.
of the community, and so long as they tend to give this
and are levied with a fair measure of equality, they sub-
serve their purpose and affirm their right to existence.
When taxes are once paid into the treasury of the govern-
ment, their disbursement may take place, not only for the
expenses of the government machinery, but also for the pro-
tection of industries as a means of directing society in
certain channels, and for general public improvement.
The whole community is to be benefitted, directly or in-
directly. (See Kentucky Court of Appeals Case, Cooley,
489.)
Canons of Taxation.
Although taxation is comparatively modern, we have
found that systems have developed along with the progress
of modern government. They have been practiced long
enough to develop a certain number of principles which
lie at the foundation of the philosophy of good govern-
ment.
Many of these principles were advocated by Adam
Smith, and have been reiterated by all writers on taxation
from his time. The first general principle is, that the
subject of every state ought to contribute to the support
of the government as nearly as possible in proportion to
his respective ability, this ability being estimated by the
amount of revenue he enjoys under the protection of the
state. And by this last sentence it is understood that, liv-
ing within and under the protection of the state, the
amount of revenue which he enjoys is to be an index of
his ability to pay for the support of the general good;
or as Mill says, " Equal taxation is equality of sacrifice."
People as a rule do not like to be taxed, because they
ECONOMICS. 469
do not receive an immediate and tangible return for what
they pay out, as they do in the case of the exchange of com-
modities. The return which they get is, indeed, very
general and indirect. But there is an indirect return
through the general good of society of which the individual
tax-payer is a member.
They also object to the payment of taxes because they
imagine that they are unjust. And, indeed, no one ever
knew a tax without a grain of injustice. John Sherman
said in one of his speeches in the Senate, "I never knew
a tax that was not odious and unpopular to the people
who pay it" ; while Mr. McCulloch has succeeded in utiliz-
ing two of Pope's lines as follows :
" Whoever hopes a faultless tax to see,
Hopes what ne'er was, is not, and ne'er shall be."
And doubtless this is a successful application of poetry
to economics. But still, Sherman's strong assertion needs
some qualification, for there certainly is a difference be-
tween a popular and an unpopular tax ; and while no one
really enjoys taxation, not all taxes are odious. But the
liability to fraud leads a man to imagine that he is paying
more than he ought, and that there is a way of escape.
This causes dissatisfaction, and a tendency on the part of
many to evade taxation. However, it should be stated that
a tax should be quite satisfactory to the people who pay it,
and should be so assessed as to give the least possible
opportunity for fraud.
Another well-known principle is, that taxes ought to
be certain, and not arbitrary, as to quantity, time of pay-
ment, and manner of payment. In feudal times, and
29
470 ECONOMICS.
sometimes indeed in modern history, the principles of
taxation have been violated in this respect. Kings and
potentates have levied taxes suddenly, and without warn-
ing, and collected them in an arbitrary and offensive man-
ner, thus violating this principle. But modern assessments
have tended to recognize all of these principles, as to the
certainty of taxation, and a fixed time of payment, and
have specified clearly the manner in which these taxes
must be paid.
A third principle is, that taxes ought to be levied in the
manner most suitable to the payer; that is, the time and
manner of payment should be as best suit his convenience.
The preceding principle holds to the definiteness of pro-
cedure, while the latter holds that this definiteness should
be so arranged as to best suit the convenience of the tax-
payer. Thus, it is more convenient for the farmer to pay
his taxes soon after he receives returns from his harvested
crops; persons receiving wages by the week or by the
month could more readily pay their taxes quarterly; and
a day-laborer finds the most convenient to pay is that
which he pays daily through a tax on commodities. Gen-
erally, enlightened nations are beginning to observe this
rule to a considerable extent, for we find that the con-
venience of the tax-payer is consulted in the times set
for the payment of taxes.
One of the most important of the principles of taxation
is, that taxes ought to take as little as possible out of the
pocket of the tax-payer over and above what is paid into
the public treasury. This is an argument in favor of the
careful expenditure of funds, as well as the proper method
ECONOMICS. 471
of assessment and collection of them. An improper tax
may lead to great injustice by taking unnecessarily from
the pockets of the people what ultimately reaches the
treasury, a surplus that is expended in the collection of
the tax, or that reaches the pocket of corrupt officials. Or
again, if a greater assessment is made than is required
to meet public needs, it results in heaping up in the public
treasury a large amount of funds, which may lead to ex-
travagance, and that in turn lead to injustice.
The economic idea of taxation is, that the fund collected
as tax is to be more profitably expended by the govern-
ment than it would be if left to private enterprise. Being
drawn from the combined earnings of all the citizens, the
tax is to be so handled that it will yield a larger economic
return than the tax itself; and also a larger return than
the money would yield if handled in small amounts by
the individuals themselves. Sometimes taxes have been
so heavy as to be little better than robbery. So much was
taken out of the pockets of the people that it burdened the
industries which they tried to carry on, and thus the taxes
were a positive detriment to the entire community. But
in this connection it may be said that the least tax is
not always the best tax; for, while it is a very bad plan
to have an extravagant tax, a niggardly tax which barely
supports the functions of the government is a detriment
to the progress of the people. Correct financiering will
avoid an overflowing treasury and a lavish expenditure,
or a government bordering on paternalism, on the one
hand; and on the other it will avoid an empty treasury,
and a meager outlay that barely keeps the government in a
472
ECONOMICS.
proper existence and does nothing for the general welfare
of the people. Thus, the building of bridges, public parks,
and highways, the development of the systems of super-
vision and inspection which enhance the power of economic
society, can all be carried on better under the direction of
the general government than they would if left to the
haphazard, irresponsible, irregular ways of individuals.
Just and Equitable Taxation.
A great deal has been said about just and equitable taxa-
tion. And these indefinite terms have led to a large meas-
ure of senseless discussion. Doubtless, a just and equita-
ble taxation is the one least burdensome, although these
taxes cannot fall equally upon all individuals. There must
be discrimination. The basis of operation should always
rest upon equality of sacrifice, and should never involve
unnecessary taxation of anyone. It is said that there is
a tendency in taxes to move along the line of least resist-
ance ; which, if it be true, means that somebody pays more
than his share, while others escape. Owing to the nature
of taxation, it having sprung up irregularly through the
development of society, it has been a very difficult matter
to adjust it so that each one should bear his own proper
share of the expenses of the government. Taxes were first
paid by the weak and those unable to resist them. Indeed,
to-day it may be said that of all the great questions before
the American people, that of equal and just taxation is the
greatest. Our system has been in confusion for a period of
years, and, as time develops, we see very little order com-
ing out of the chaos. We need a thorough revision of our
tax system, which shall combine harmony, simplicity, and
proper discrimination in all assessments and levies.
ECONOMICS.
473
Incidence of Taxation.
A subject which has caused a great deal of discussion
in the theory of taxation, and about which there is much
controversy to this day, as it is still an unsettled question,
is that of the " Incidence of Taxation." By it we indi-
cate or determine upon whom the tax ultimately falls. A
tax is sometimes levied upon one person and seemingly
paid by him, but in reality has been shifted to another;
and the incidence of taxation answers only one question,
viz. : Upon whom does the tax ultimately fall ? A tax
may.be borne by the person upon whom it is levied, or it
may be shifted to others, who in turn may shift it to a
third party. And this shifting may be done either know-
ingly or unknowingly by the person who shifts. We
should carefully discriminate between shifting and evasion,
for evasion is simply a failure to pay a tax at all by
avoiding it, while shifting is the process of referring the
tax to others to pay. But in this respect we do not at all
consider the effect of taxation, but merely upon whom the
taxes fall. It is, then, a question of great importance, for
indeed upon it the whole theory and practice of modern
taxation rest.
The theory was discussed as early as 1651 by Hobbs,
in his Leviathan, who advocated a general excise so that
those who paid taxes would not feel them a burden, not
knowing when they pay them nor how much they pay.
And Cradock holds that taxes should fall so that the
burden will be borne insensibly by the tax-payers. And
Thos. Mun, in 1664, held that in proportion as the nec-
essaries of life increase in value, so the rate of wages will
rise, and taxes will be shifted accordingly from the wage-
474 ECONOMICS.
earner to the employer and the rich. Sir William Petty
held, in 1672, that under such circumstances the employ-
ing producer will bear the taxes because the incidence
falls on him. The question received much discussion
from time to time, and has been revived of late by Mr.
Seligman, Mr. Ross, and others. A careful inquiry into
this principle will show us that many of our so-called
direct taxes may in time be shifted as are the so-called
indirect taxes; so that really the distinction between di-
rect and indirect taxes is largely in the mind of the legis-
lator as to what he intends shall be direct and indirect,
rather than in the practice of the tax itself.
The poll, or capitation tax, must fall upon the indi-
vidual upon whom it is laid, and cannot be shifted, except
when it falls upon the wage-earner, and then it will not
be shifted unless it falls upon the margin of his necessary
subsistence. That is, when wages are below the nominal
rate and taxes are laid upon wages, they will be shifted
to the employer ; when wages are above the nominal rate,
taxes upon the wage-earner will be borne by him.
Taxes upon inheritances and bequests cannot possibly
be shifted; the property is in sight, and it must yield to
the return of the levy. An internal tax may or may not
be shifted, though in the greater majority of cases it is
shifted in whole or in part. The tax on imports is gen-
erally called an indirect tax, and as a general rule it will