LIBRARY 
 
 OF THE 
 
 University of California. 
 
 GIFT Oi^ 
 
 Class 
 
PRINCIPLES OF JUSTICE 
 IN TAXATION 
 
 BY 
 
 STEPHEN E. WESTON, A. M. 
 
 President of Antioeh College 
 Sometime Univei'tity Fellow in Finance 
 
 SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS 
 
 FOR THE DEGREE OF DOCTOR OF PHILOSOPHY 
 
 IN THE 
 
 Faculty of Political Science 
 
 OF 
 
 Columbia University 
 
 \3 R A R')- 
 
 UNI.' -:3ITY 
 
 0^■ 
 
 1903 
 

PREFACE. 
 
 The subject of this monograph was chosen in 1891 while 
 I was taking post-graduate work at Columbia University. 
 The first draft was nearly finished in the spring of 1894 when 
 I was compelled to give up work for a time on account of 
 ill health. Engaging in academic work in the fall of 1894 I 
 was again obliged to set the monograph aside until the winter 
 of 1900. Since then it has been completely rewritten and 
 chapter VIII added. 
 
 For his constant interest and encouragement I feel greatly 
 indebted to Professor Seligman, for otherwise the monograph 
 would not have been completed. I wish, also, to take this 
 occasion to express my appreciation for the courtesy shown 
 to me by the Faculty of Political Science of Columbia Uni- 
 versity in giving so much extension of time for the comple- 
 tion of my monograph. To Dr. Alvin S. Johnson, of 
 Columbia University, I am indebted for verbal changes of 
 text and for reading of proof, 
 
 S. F. W. 
 Antioch College, Yellow Springs, Ohio, May, igo^. 
 
TABLE OF CONTENTS 
 
 VAGI 
 
 CHAPTER 1 
 
 Introduction 1 1 
 
 CHAPTER II 
 
 THE ORIGIN AND NATURE OF THE STATE 
 
 I. The Individual and Society 19 
 
 II. Origin of the State 24 
 
 III. The Nature of the State 26 
 
 IV. Characteristics of the State » • • . 28 
 
 I. Tht Voluntary and Involuntary Character of Political Organisa' 
 
 tion 28 
 
 a. The Organic Theory of the State 32 
 
 3. The Nature of Sovereignty 36 
 
 CHAPTER III 
 
 taxation, economics and kthics 
 
 I. Taxation 43 
 
 1. The Nature of a Tax 43 
 
 2. Characteristics of a Tax 46- 
 
 3. The Limits of Taxation 5** 
 
 II. Taxation and Economics 54 
 
 1. Taxation and Production 55 
 
 2. Taxation and Distribution -- - 60 
 
 3. Taxation and Consumption • 65 
 
 III. Taxation and Ethics * 68 
 
 CHAPTER IV 
 
 THE political BASIS AND PRINCIPLES OF TAXATION 
 
 I. The Social Contract and Taxation 76 
 
 1. The Political Philosophers 77 
 
 2. 7 he Protection Theory of Taxation 85 
 
 343] 7 
 
8 CONTENTS [344 
 
 PAGB 
 
 II. The Evolution Theory of the State and Taxation 90 
 
 III. The Utilitarian Theory of the State and Taxation 98 
 
 1. Tk£ Theory of Mill 99 
 
 2. The Utilitarian Theory of Sax and the Austrian School 102 
 
 IV. Social Theories and Taxation 106 
 
 1. Anarchism 106 
 
 2. Communism 107 
 
 3. Socialism 108 
 
 V. Conclusions as to the Political Basis and Principles iii 
 
 CHAPTER Y 
 the economic basis and principles of taxation 
 
 I. The Physiocrats and the Single Taxers 116 
 
 1. The Fhysiocrats Il6 
 
 2. The Single Taxers : 119 
 
 H. The Classical School of Economists 125' 
 
 I4 The Benefit Theory of Taxation 125 
 
 %4 The Exchange Theory, 129 
 
 3» The hisuratue Theory 132 
 
 HI. The Productive Theory of Taxation 134 
 
 IV. The Utility Theory of Sax 138 
 
 1. Its Originality ., 140 
 
 2. Simplicity and Truth 141 
 
 3. Individual arid Collective Psychology 143 
 
 {iy Individual Psychology 145 
 
 (a) Collective Psychology 146 
 
 4. Collective Needs empirically Considered , 149 
 
 (l). Differences in Character 149 
 
 (?) Political Factors 151 
 
 V. Conclusions as to True Economic Basis and Principles 155 
 
 CHAPl'ER VI 
 the ethical basis of taxation 
 
 I. The Benefit Theory of Taxation i6o 
 
 1. The Cost-of Service Theory 161 
 
 2. The Uahie-of- Service Theory 165 
 
 (a ) Expenditure 167 
 
 (2) Property 168 
 
 (3) Income 169 
 
 (4) Marginal Utility 1 70 
 
345] CONTENTS 
 
 9 
 
 PAGE 
 
 II. Ability as an Ethical Basis of Taxation 171 
 
 1. Ability and Property i-c 
 
 2. Ability and Income j -g 
 
 ( 1 ) Meaning of Income i nn 
 
 (2) Taxable Income 182 
 
 III. Ability and Sacrifice igy 
 
 I- Mill ,87 
 
 2. Wagner and A^eumann 189 
 
 3. Meyer ,go 
 
 4- Sax ig^ 
 
 5. 7"^!? Dutch Economists iqy 
 
 6. Edgeworth 20 1 
 
 IV. Conclusion : Ability versus Sacrifice 206 
 
 CHAPTER VII 
 
 ethical principles of taxation 
 I. The Principle of Equality 212 
 
 1. Rate and Source of Income 21 ^ 
 
 (i) Funded and Unfunded Incomes 213 
 
 (2) Inheritance and Gifts 216 
 
 (3) Monopoly and Quasi-Rent Income 217 
 
 (4) Income from Speculation 220 
 
 2. Rate and Character of Income 221 
 
 3. Rate and Amount of Income 224 
 
 (i) Proportional Taxation 226 
 
 (2) Progressive Taxation 2^1 
 
 II. The Principle of Universality 246 
 
 1 . The Justification of Exemptions 247 
 
 2. The Limitation of Exemptions 2c6 
 
 CHAPTER VIII 
 
 practical justice in taxation 
 
 I, Assessments * 266 
 
 1. Declaration vs. Doomage 266 
 
 2. Taxable Property ,68 
 
 3. Methods of Assessment 270 
 
 II. The True Tax System 276 
 
 I. Subjects and Methods of Taxation 277 
 
 ( 1 ) Taxes on Consumption 278 
 
 (2) Taxation of Real Estate 280 
 
 (3) Taxation of Personal Property 281 
 
lO 
 
 2. 
 
 CONTENTS [346 
 
 PAGB 
 
 (4) Taxation of Mortgages 282 
 
 (5) Taxation of Corporations 283 
 
 (6) Taxation of Inheritances 287 
 
 Siate and Local Taxation 290 
 
 (i) National Taxes 291 
 
 (2) State Taxes 292 
 
 (3) Local Taxes 293 
 
CHAPTER I 
 
 INTRODUCTION 
 
 A THEORY of taxation is necessarily bound up with funda- 
 mental questions of political science, economics and ethics. 
 By abstracting any one of these elements and making it 
 alone the determining factor, or by giving it an undue im- 
 portance, a theoretical solution of the problem may be made 
 a comparatively easy task. But such a solution, like most 
 schemes based upon one-sided or partial truths, is neces- 
 sarily defective and not infrequently Utopian, The real 
 difficulty arises when "these factors are comprehended in 
 their full significance, or in their true relation to one an- 
 other ; but only in this way can the problem be fully under- 
 stood in its various bearings, or a solution be offered that is 
 satisfactory alike to reason and to the requirements of jus- 
 tice. This difficulty is two-fold. In the first place our 
 views will necessarily be colored according to which of these 
 factors we consider the foundation-idea of our theory and 
 which we regard as incidental or supplementary ; and in the 
 second place very much depends upon our interpretation of 
 the fundamental idea and of the character of its relation to 
 the other factors. Even if but one of these factors is con- 
 sidered as having any importance, the question is not alto- 
 gether a simple one, for there still remains the difficulty 
 arising from the interpretation we may give to the chosen 
 factor as the only one for consideration. It is such facts as 
 these that account for the general disharmony in theories of 
 taxation. 
 
 An illustration of the difficulties referred to is found when 
 347] II 
 
12 JUSTICE IN TAXATION [348 
 
 the political factor is made the only one or the fundamental 
 one. For if, on the one hand, we regard the individual as 
 the only important factor, and the state as merely an acci- 
 dental but necessary evil, the tendency v^^ill be to an extreme 
 of individualism; if, on the other hand, the individual be re- 
 garded as a mere part of an organic whole, a cell of a living 
 organism, we are in danger of the opposite extreme of 
 socialism. The one extreme tends to the contract theory of 
 Hobbs, Locke and Rousseau with its individual independence 
 and its protective theory of taxation ; the other to a personi- 
 fied social organism which directs the economic activities of 
 its units and utilizes taxation to produce artificial equalities 
 of wealth. Both of these extremes are false, although they 
 involve the important truth that principles of taxation are 
 intimately associated with a political philosophy. 
 
 Not less are the difificulties, nor more satisfactory the re- 
 sults, if the question be approached from a purely economic 
 point of view. Different theories will be maintained and 
 different conclusions reached according as production, dis- 
 tribution, or consumption is made the basis of the economic 
 theory. Moreover, different conclusions will result from 
 different assumptions respecting economic principles, or 
 from the importance attached to specific economic laws. 
 If, for example, production under a laissez faire regime be 
 regarded as the chief end of human activity, it will be con- 
 cluded that taxation should interfere as little as possible with 
 capital and its accumulation, while the relative productive 
 powers of individuals should be the same after as before the 
 payment of a tax. Or if there be implicit confidence in the 
 doctrine of free competition there will be little concern about 
 the tax system, the shifting and incidence of the tax through 
 the action of competitive forces being relied upon to effect 
 the ends of justice. Similarly we have only to exaggerate 
 other economic elements to get other results. 
 
349] INTRODUCTORY 13 
 
 So, too, the ethical factor may lead to equally divergent 
 results according as Hedonistic or utilitarian principles, or 
 the realization of the idea of man, is made the dominant 
 feature of our ethical system. The difficulty is here further 
 exaggerated by the fact that there is frequently a difference 
 between theoretical and practical ethics. Harmony between 
 these, whatever our ethical principles, is by no means easy 
 to accomplish. Yet a substantial harmony must be estab- 
 lished, or, on the one hand, we shall have only utopianism 
 founded upon abstractions, and, on the other hand, expe- 
 diency founded upon concrete facts without reference to 
 ideas of justice. 
 
 But a more fundamental difficulty than that which arises 
 within the separate factors themselves is the determination of 
 their relative importance. Each one must receive due con- 
 sideration ; the political, because the relation of the state to ' 
 the individual is primarily involved ; the economic, because/ 
 matters of taxation are essentially of an economic character; 
 the ethical, because the subject and the end of the whole 
 proceeding is man, a spiritual and therefore an essentially 
 ethical entity. But which is the ruling factor? The im- 
 portance of this question, together with the full recognition 
 of the separate factors, is so great that we shall treat this 
 aspect of the subject somewhat 'at length before taking up 
 the main question — that of justice in taxation. Indeed, this 
 method of procedure is indispensable since the principles of 
 justice can not be determined before the basis upon which 
 they rest is established. 
 
 It may be premised here, however, that the whole subject; 
 of taxation revolves about man as its center — man in his 
 relation to society, to his family and to himself; to the ends, 
 that is, of his own existence. It has not, indeed, to do with 
 the whole of man's activities and relations, but only with a 
 small portion of them; in fact, with only a portion of those 
 
14 JUSTICE IN TAXATION [350 
 
 involved in his political existence — the maintenance and 
 support of the state, or what may be called the satisfaction 
 of the collective needs of the individual. But because these 
 needs and their satisfaction are common and involve human 
 relations, an equitable distribution of the burden is de- 
 manded. In brief, the question of taxation is a part of the 
 larger question of distributive justice. But it is not with 
 ideal men or ideal conditions with which we have to do, but 
 / with actual men and conditions. Hence, the specific forms 
 which the principles may take will depend upon the pre- 
 vailing moral and intellectual, the political and economic 
 development. 
 
 But while the ultimate end is ethical, the means thereto 
 are largely economic. Both a theoretical and a practical 
 determination of what is justice in taxation presupposes a 
 knowledge of economic laws and of their influence upon 
 the efifects of any system of taxes. ^ It could not be other- 
 wise, since all the phenomena concerned are economic. 
 The end alone is ethical. But the ethical is not so far con- 
 ditioned by the economic that it is only a consequence of 
 economic laws. There are, however, certain fundamental 
 principles in taxation (and it is these with which we shall 
 have specially to do) that are not directly concerned with 
 economic laws. They presuppose, indeed, certain economic 
 conditions and certain economic forces, but their real justi- 
 fication is to be found in a political philosophy and in the 
 ethical end of man. It is more directly with the practical 
 side of justice that economic forces have their importance ; 
 although it is true that the theoretical principles of justice 
 depend upon economic facts for their interpretation. 
 
 Notwithstanding this close relation of the economic and 
 the ethical, they are entirely distinct, being related as means 
 to an end, or as proximate and ultimate ends. This fact is 
 
 ^ Cf. Bastable, Public Finance, p. 9. 
 
351] INTRODUCTORY 1 5 
 
 universally recognized in every financial doctrine ; for, con- 
 sciously or unconsciously, the ultimate sanction of every 
 theory is its conformity to what are assumed to be the ends 
 of justice. Even those who, like Sax, deny that ethics has 
 any place in finance, are forced to this standard, as we shall 
 have occasion to see later. With all, the attainment of ? 
 justice in the distribution of the tax burden, is the ruling ^ 
 idea. Thus, in fact, as well as from the nature of the subject 
 itself, the ethical element is made the predominating element 
 in determining the principles of taxation. But unanimity of 
 thought respecting the end does not guarantee unanimity of 
 doctrine. Such agreement of doctrine depends upon the 
 conceptions of ethical ideals, and in these the differences 
 are as great as those already noted. 
 
 Finally, the difficulties of the problem of taxation and of 
 the attainment of a common agreement of doctrine do not 
 consist alone in differences of fundamental presuppositions 
 or of ideals. Not the least of the difficulties is a logical con- 
 sistency in the development of a theory from its presupposi- 
 tions. Too frequently prejudice, sentiment or expediency 3 
 usurp the place of logical thinking, which not unfrequently 
 results in conclusions in no way related to the premises 
 assumed, even if they are not in direct opposition to them. 
 
 Without a further enumeration it must be evident that the 
 problem that we have assumed to discuss is full of perplex- 
 ing difficulties. That we shall be able wholly to avoid them 
 cannot be presumed, for many of them are inseparable from 
 the subject itself. We must necessarily start with assump- 
 tions, and the merits of our treatment must be measured by 
 the rationality of these assumptions and the logical con- 
 sistency with which the idea contained in them is developed. 
 A philosophical or scientific treatment must further be 
 devoid of any personal bias. While it shall be my aim 
 to attain this standard there will undoubtedly be some who 
 
l6 JUSTICE IN TAXATION [352 
 
 will consider my point of view, if not my reasoning, vitiated 
 by an undue ethical emphasis. But apart from the fact that 
 the real subject of my study is an ethical one, I believe that 
 in emphasizing the ethical element of the problem I am only 
 recognizing what is implied, if not expressed, in other 
 theories. While we start out with the idea of ascertain- 
 ing the principles of justice in taxation we endeavor to start 
 without any presuppositions as to what those principles are. 
 Our presuppositions are in the assumption of fundamental 
 principles, not in the conclusions ; but without such assump- 
 tion no rational treatment of the subject is possible. 
 
 What, then, is the assumption with which we start out? 
 It is the conception of man as a personality, and as such as 
 an end in himself whose fullest realization is the purpose 
 and end of his existence ; and that this realization takes 
 place very largely in and through institutions, one of the 
 most important of these being the political institution — the 
 state. The assumption, however, is not a mere assumption. 
 It has rational justification ; but the demonstration of this 
 belongs to the field of metaphysics ' and for our purpose 
 will be presumed. Of special and more immediate impor- 
 tance to our thesis is the relation of the state to the individ- 
 ual in this process of realization. Hence, a conception of 
 the nature of the state and its relation to the individual will 
 constitute the foundation of our thesis and form the basis of 
 our argument. What the nature of the state is belongs to 
 political philosophy to determine ; but since political 
 philosophy afTords so many different conceptions of the 
 state, and since our own argument must depend upon our 
 own conception, it will be necessary to lay our own founda- 
 tions by first discussing the origin and nature of the state 
 before discussing the principles upon which the state should 
 be maintained — or the principles of taxation. This we shall 
 
 ^ See T. H. Green's Prolegomena to Ethics. 
 
3531 INTRODUCTORY ' 17 
 
 attempt to do in the following chapter so far as is necessary 
 to make clear our own point of view. We shall then discuss 
 the nature of taxation and its relation to economics and 
 ethics, after which we shall take up the subject of our thesis 
 proper. 
 
 Before beginning our discussion, however, it may be well 
 to clear up an ambiguity suggested in the wording of our 
 subject. "Justice in Taxation" maybe considered either! 
 from a practical or from a theoretical point of view. Under I 
 the former the subject would involve the setting forth of a 
 detailed system of taxes that would realize justice to the 
 individual taxpayer. A theoretical treatment, on the other 
 hand, involves a discussion of principles rather than of kinds 
 or systems of taxes. It is the latter view that forms the 
 chief subject of our inquiry, although from neither point of 
 view can a discussion of justice in taxation wholly ignore 
 the efTects of taxation ; as, for example, the phenomena of 
 shifting and incidence are closely related to the problem of 
 rates and exemptions. Principles, however, must precede 
 definite systems just as a fundamental assumption must pre- 
 cede the determination of principles, for without a norm of 
 judgment no definite conclusions are possible. 
 
 The necessity of this norm must be our answer to the 
 "practical man" who distrusts all theorizing not based upon 
 empirical facts alone, and who seeks to determine justice inj' 
 taxation by purely objective standards. Such a procedure 
 is, to our mind, comparable to the attempt to obtain a 
 knowledge of an object from mere sensations without refer- 
 ence to a unifying and interpreting agency to give them 
 meaning. Like sensations, mere facts are without signifi- 
 cance. The so-called facts of the empiricist must be given 
 a meaning by reference to fundamental concepts. The 
 principles once established, it is for the practical statesman 
 or financier to put them into operation. If the principles 
 
1 8 JUSTICE IN TAXATION [354 
 
 are not practicable they must be considered as Utopian, at 
 least under existing conditions. The ideal, however, has its 
 place and importance, but the necessity of its modification 
 in practice according to circumstances must be recognized. 
 The nearest approximation to justice is always the ideal 
 under any given conditions. 
 
CHAPTER II 
 
 THE ORIGIN AND NATURE OF THE STATE 
 
 A STUDY of the origin and nature of the state is a neces 
 sary preh'minary to a study of the nature of taxation and is 
 indispensable as a foundation for the determination of the 
 principles on which taxation should be based. It furnishes, 
 moreover, an explanation of the reason why these principles 
 should be based upon ideas of justice. That justice should 
 be the aim in all taxation, is now universally admitted, and 
 appears, indeed, so self-evident that proof is deemed un- 
 necessary; but the proof is always implied, and is to be 
 found in the nature of the state, or rather in the nature of 
 the individual and his relation to the state. 
 
 I. The Individual and Society 
 
 The nature of the state is determined by the nature of 
 society as the nature of society is determined by the nature 
 of the individual. But the individual and society are so- 
 intimately related that they mutually condition each other, 
 and hence our study must begin with a study of the indi- 
 vidual and society. 
 
 Beginning, then, with man, the individual, it is possible to 
 conceive of him in three dififerent aspects : As related to 
 himself, that is, as a distinct personality ; as related to 
 society, or as a complex personality; and as related to the 
 Infinite, or as a permanent personality. These three aspects 
 are expressive of the ethical, social and religious nature of 
 man, and without their co-ordination we have only the im- 
 perfect and undeveloped man. Our concern, however, is 
 355] 19 
 
20 JUSTICE IN TAXATION [356 
 
 with only the first two of these aspects — man the individual 
 and man in society. In respect to the former we assume, 
 and without attempting a metaphysical proof, that man is a 
 human spirit and, as such, a personality, and therefore exists 
 as an end in himself; that it is the purpose of his life to 
 realize that end — to develop his highest personality, to per- 
 fect himself. Otherwise man would exist without any 
 rational purpose. It is not the nature of the human spirit to 
 be content with mere existence, except, perhaps, in its lowest 
 form, where the animal predominates over the human. It is 
 rather its nature to develop, to unfold itself, to manifest its 
 possibilities, and in doing so it reveals and perfects its own 
 personality. 
 
 But the development of individual personality can not take 
 place by itself. It is possible only in and through a society 
 of similar personalities, a society oi persons. As a person in 
 a society of persons the individual, in being conscious of his 
 own end. as an end in itself, recognizes that every other in- 
 dividual is likewise an end in himself, and therefore an end 
 to be realized. In this reciprocal recognition of similar 
 natures, effort towards the realization of others becomes a 
 part of the realization of self. Thus, though an end in him- 
 self, the individual does not exist solely for himself, but is 
 at once his own end and a means to the ends of others. His 
 development is conditioned by their development, as their 
 development, in turn, is conditioned by his. The joint effort 
 towards the realization of individual personality centers in 
 the social nature of man and necessarily involves social re- 
 lations. Only through the development of the social nature 
 is the development of the individual nature made possible, 
 as only by the co-ordination of the individual and social side 
 of human nature can true personality exist. 
 
 The development of the social, and therefore also of the 
 individual, nature of man takes place in manifold ways, but 
 
357] ORIGIN AND NATURE OF THE STATE 21 
 
 more and more, with the progress of his development, 
 through social relations that manifest themselves in social 
 institutions, in whose complex phenomena we have what is 
 called " society." To borrow Hegelian terminology, the 
 human spirit in realizing itself objectifies itself in social insti- 
 tutions — in society. Such a society being a manifestation 
 of, and so constituted by, persons is something more than a 
 mere aggregate of individuals, a mere numerical quanitcm. 
 It is the result of social forces, and aggregation is not social- 
 ization. The bond that transforms human aggregates into 
 living societies is psychical. But at the same time that it is 
 a uniting, it is also a differentiating force; thus, while giving 
 unity to the social elements and to the social whole, it per- 
 mits expression of the manifold human interests in social 
 efTort. It is, furthermore, purposive in character, uniting 
 common interests to common ends, and so re-enforcing the 
 recognition by self-conscious spirits of persons as means to 
 the ends of others, as ends to themselves. To the extent 
 that this common interest and recognition do not exist the 
 self-seeking spirit of man tends to the disintegration of so- 
 ciety ; or to the assumption by a part of society that certain 
 classes of individuals are only means to the ends of others, 
 a practical denial of their existence as persons, as ends in 
 themselves. The existence of such a negative force in so- 
 ciety has far-reaching consequences, not only in matters of 
 taxation but in the whole economic and social life; for to 
 the failure to recognize individual personality as an end in 
 itself are very largely due the antagonisms of social classes. 
 Only in the complete recognition of the ethical nature and 
 end of the human person can society fulfill its highest pur- 
 pose, as expressing the objective realization of the individual 
 — of personality; and the more this becomes a reality in 
 life the more will justice between man and man be realized. 
 And the more that society is recognized to be a society of 
 persons the more will these ends be attained. 
 
22 JUSTICE IN TAXATION [358 
 
 But if it is true that society is constituted of persons, and 
 that without persons there is no society, it is not less true that 
 without society there are no persons.' Persons and society 
 are, in fact, correlative to each other. Each presupposes 
 the other. In society personality and individuality unfold 
 themselves; in society the human spirit seeks its realization. 
 Without society the person has only potential capacity, 
 while it is only in society, " only in the intercourse of men, 
 each recognized by each as an end, not merely as a means, 
 and thus as having reciprocal claims, that the capacity is 
 actualized and that we really live as persons." ' If the evo- 
 lution of social relations, indeed, is but the gradual tracing 
 out of the evolution of the human spirit, these relations, as 
 they at any time exist, are the embodiment of all past, and 
 condition all future, social development. But although so- 
 ciety and the individual mutually presuppose each other the 
 end of social evolution is not in society, as such, but in the 
 realization of the individual, to which end society is a con- 
 dition and a means. And in the character of society as a 
 society of persons, and as a condition of their development, 
 we have indicated the ethical character of all social institu- 
 tions, and the necessity of ethical considerations in all social 
 relations. Related as subjective to objective the develop- 
 ment of one implies the development of the other. And as 
 the development of the ethical life takes on the form of a 
 change in extent rather than in the fundamental ideas,^ em- 
 bracing an ever larger circle of persons in the consciousness 
 of the unity of purpose and ends, so in social evolution there 
 is an ever increasing multiplicity in the numbers and variety 
 of social institutions, an ever growing organization of com- 
 mon interests and common ends, the complexity of the 
 social relations being a reflex of the complex nature of the 
 
 * Green, op. cit., p. 199. 
 
 *Ibid., p. 192. » Cf. Green, p. 269. 
 
359] ORIGIN AND NATURE OF THE STATE 23 
 
 individual, a means of his giving expression of himself — of 
 his being a person. 
 
 The complexity of social relations is not a miscellaneous 
 complexity. Every human interest, when it becomes suffi- 
 ciently important and sufficiently general according to cir- 
 cumstances, is focussed in an organized body of persons with 
 the purpose of giving realization to the common interest. 
 Thus, out of social relations are formed social groups, whose 
 totality constitutes society. These groups tend to embrace 
 every human interest of social importance — intellectual, 
 moral, religious. They divide and subdivide, ever increasing 
 in numbers and variety with intellectual, moral and religious 
 progress. In content these groups tend to become more 
 specialized, in extent more generalized; a condition due to 
 scientific progress, as in means of communication, on the 
 one hand ; and to a broader human fellowship, an enlarging 
 consciousness of the unity of interests and ends, on the other 
 hand. But the consciousness of a community of interests 
 and ends that gives rise to social groupings is not a reflective 
 consciousness of ultimate ends, except, perhaps, in certain 
 religious groups. The determining consciousness is that of 
 immediate interests and ends. Consciousness of ultimate 
 ends has little direct influence upon social groupings. The 
 ultimate end is revealed only by a reflective analysis of the 
 philosophy of social life with reference to the life of the in- 
 dividual. Yet it is only in and through the almost countless 
 number of these groups, ever increasing in numbers and var- 
 iety, that the human spirit finds its fullest realization. And 
 the " unity in complexity " of these groups is typical of the 
 highest form of social evolution.' 
 
 The tendency towards social organization, however, is not 
 without its opposing influences. The presence of self-seek- 
 ing spirits as the dominant factor in human life is a dis- 
 
 * Cf. Spencer, Principles of Sociology, Ft. v, chs. 2-4. 
 
24 JUSTICE IN TAXATION [360 
 
 integrating social force and produces a retardation if not a 
 negation of social organization. Social development is con- 
 ditioned not only by the presence of positive social forces 
 and favorable conditions, but by the absence of negative 
 forces and conditions. Progressive realization of the human 
 spirit is possible only where the conditions are favorable to 
 its voluntary and spontaneous activity, both with respect to 
 individual undertakings and with respect to associated effort 
 such as is manifested in the social groups seeking a common 
 purpose. That these positive and negative conditions 
 should be maintained becomes, then, a matter of the first 
 importance and of general interest. To this end a coercive 
 power is a necessary requisite, and hence, in its main- 
 tenance and support there is a universal interest. Such a 
 power is realized in the political organization of society, the 
 state — the all-comprehensive social group representing the 
 universal common interest. In this group is centralized 
 both the objective and the subjective complexity of society, 
 in it social life reaches its highest culmination. 
 
 II. Origin of the State 
 
 With the actual historical origin or with the evolution of 
 the stale we have no concern. Being in search of princi- 
 ples our point of view is wholly that of a philosophy of the 
 state, and is therefore an inquiry into its underlying princi- 
 ple and cause, of which the historical state is a manifesta- 
 tion, whatever may have been the course of its development. 
 From this point of view the state's origin may be considered 
 under two aspects, its objective necessity and its subjective 
 necessity. 
 
 By objective necessity I understand the necessity, pointed 
 out above, of a coercive power to give unity to society and 
 to make possible the conditions of social, and thereby in- 
 dividual, development. For without such a dominating 
 
36 I ] ORIGIN AND NATURE OF THE STATE 25 
 
 social group society would at best be but an unorganized 
 mass of social groups in perpetual and unrestrained conflict 
 with anti-social forces, thus destroying the effectiveness of 
 social organization and social effort in the work of the 
 realization of man. The necessity, indeed, of this restrain- 
 ing and controlling power has been recognized, however un- 
 consciously, from the very dawn of society, though its 
 earliest manifestation was in other social groups, such as the 
 family and religious groups. In the course of time the ever 
 increasing manifoldness of interests, by a process of social 
 evolution, gave rise to a differentiation of the groups, a dis- 
 tinct political group ultimately emerging with the specific 
 function of maintaining the order and conditions necessary 
 to the ends of individual and social life. Assuming the 
 realization of the individual as the unrestrainable and 
 impelling force, the necessity of the objective conditions 
 may be considered as one of the unconscious forces that 
 brought the state into being. In brief, its very indispensa- 
 bleness is the cause of its being. With human nature as it 
 is the state can not be conceived not to be. 
 
 But the objective necessity is not the only cause of the 
 state. Back of that and co-operating with it is a subjective 
 necessity that springs from the nature of the individual. On 
 the one hand it is the necessity of self-realization in the 
 most effective manner; on the other hand, it springs from 
 the social nature of man ' that impels him to associative 
 effort for individual ends of a common interest. In this 
 respect the state does not differ from other social groups. 
 These differ among themselves chiefly in content and im- 
 mediate end, but also in the form of organization and gov- 
 ernment. Ncr is the social nature that binds men together 
 in societies a mere instinct such as prevails in animal soci- 
 eties. It is rather a partly conscious and partly unconscious 
 
 * Aristotle, Folilics, i, 2. 
 
26 JUSTICE IN TAXATION [362 
 
 recognition of common ends of immediate interest; and with 
 the highest development, also, of ultimate ends. Philosoph- 
 ically the social nature of man as distinct from the social 
 nature of the animal, has its reason, if not its spring, in the 
 conscious or unconscious recognition of man as an end in 
 himself and as a means to the end of others. 
 
 III. The Nature of the State 
 The real nature of the state is revealed on the one side in 
 its origin and on the other side in its end. Its origin, nature 
 and end are, in fact, but different ways of viewing the funda- 
 mental conception of the state as an indispensable instrument 
 in human development. In determining its origin we have, 
 therefore, determined in general its nature and end. But a 
 more specific determination of its nature is necessary, and 
 this may best be done by a more specific determination of 
 its end, for, as Aristotle long ago pointed out, the nature of 
 a thing is determined by its end.' 
 
 What, then, is the end of the state? We must first of all 
 distinguish between the end of the state and the functions of 
 government. A government is only the agent of a state, an 
 organization within the state for effecting its will — its pur- 
 pose. A state is a body of people organized into a body 
 politic to effect the purpose or ends of individuals. The 
 functions of government, then, have reference to the organ- 
 ized will of the people ; the end of the state to the end of 
 the individual. We may, however, consider the end of the 
 state as of a two-fold character: proximate and ultimate. 
 Proximate with reference to the establishment of preliminary 
 conditions; ultimate with reference to the final end. Ac- 
 cordingly Professor Burgess calls the proximate end the 
 establishment of government and liberty;'' but if we may 
 
 ^ Aristotle, Politics i, 2, 8. 
 
 ^ Burgess, Political Science and Constitutional Law, Vol. i, p. 86. 
 
363] ORIGIN AND NATURE OF THE STATE 27 
 
 consider government as inseparable from the state, though 
 distinct from it, the proximate end might be more justly 
 considered as the guaranteeing of rights and justice between 
 man and man,' the direct maintenance of them being a 
 function of government. What the specific functions may- 
 be is a question that is determined at any time by the 
 existing state of culture and civilization, by the prevailing 
 conception of the relation of the state to the individual. But 
 into this question we need not enter here. 
 
 The ultimate end of the state is the ultimate end of its 
 units — of the individuals of which the state is composed. 
 The state by itself can have no end that is ultimate, since 
 ultimate ends pertain only to entities that are ends in them- 
 selves. The end is ultimate to the state only with reference 
 to its supreme purpose — to the ultimate purpose of its exist- 
 ence — not with reference io itself. This purpose, and there- 
 fore the ultimate end of the state, is the completest realiza- 
 tion of the individual — his capacities, his persotiality, the 
 highest human development, the perfection of humanity." 
 Considered with reference to itself the ultimate end of the 
 state is the maintenance of the conditions that are essential 
 to the self-realization of the individual. The state is a 
 means ; man alone is the end. 
 
 In brief, a state represents the organized efTort of a people 
 to realize the fullest development of human personality; or 
 it is the supreme conditioning instrument of that realization. 
 And to be such a condition and instrument constitutes the 
 real essence of the nature of the state. But all other human 
 institutions are conditions as well as means to the develop- 
 ment of the individual ; and since their existence and utility 
 are conditioned by the existence of the state, we may char- 
 acterize the state as the condition of conditions that are 
 
 • Cf. Lilly, First Principles in Politics, p. 30. 
 
 ' Cf. Burgess, op. cit., p. 85, and Lilly, op. cit., p. 51. 
 
28 JUSTICE IN TAXATION [364 
 
 necessary for the realization of man. This supreme im- 
 portance of the state to the individual makes it of universal 
 interest, while the ethical character of its end, a consequence 
 of the ethical character of its units, makes it an ethical 
 institution. These characteristics of the state — the universal 
 interest and the ethical character — may be called derivative 
 characteristics of its nature. There are also other character- 
 istics of the state that are essentially connected with the 
 nature of the relation of the state to the individual. A 
 definite conception of the most important of these is neces- 
 sary to a clear understanding of the nature and principles of 
 taxation. They are : The character of the relation of the 
 individual to the state; the character of the state as an 
 organization; and the character of the state as a supreme 
 controlling power. We shall discuss these characteristics of 
 the state briefly under the following heads : The voluntary 
 and involuntary character of political organization; the 
 organic theory of the state ; the nature of sovereignty. 
 
 IV. Characteristics of the State 
 
 I. The Voluntary and Involuntary Character of Political 
 Organization. We have thus far seen that the state is the 
 supreme and most important of social institutions ; that it 
 originates on the one hand in the social side of human 
 nature, and on the other hand in the effort of man to realize 
 the possibilities of his nature ; that its origin dates from the 
 very dawn of social life; that in its development in form and 
 organization it has gradually become differentiated from 
 other social groups, assuming the special function of estab- 
 lishing the conditions that make their development, as well 
 as all social evolution, possible, its ultimate purpose being 
 the realization of human personality ; that, finally, it is an 
 ethical institution in which there is a universal interest. Its 
 dominant feature is its conditioning character, but while this 
 
365"' ORIGIN AND NATURE OF THE STATE 29 
 
 feature is prominent in every field of social life it has per- 
 haps its greatest significance in the economic life ; not only 
 because economic or industrial conditions are the best ob- 
 jective indication of progressive enlightenment and civiliza- 
 tion, but because the economic life is in a sense the founda- 
 tion of both individual and social life, and so also of the state 
 itself. In such a social body, whose existence is so impor- 
 tant to the individual that without it he could not exist as a 
 person, what is the character of the membership? In other 
 social groups membership is limited, and is determined by 
 choice based upon an idea of the Good for the self but with 
 limitations imposed by each social group for itself. Choice 
 and permission are both essential ; there is no compulsion 
 either from within or from without, but only a subjective 
 necessity. Is membership in the state of the same char- 
 acter? Membership in this or that particular state is deter- 
 mined by various influences, as language, custom, tradition, 
 nationaUty; but with intellectual and economic enlighten- 
 ment and growth in personal freedom, membership becomes 
 more and more determined from choice, from an idea of a 
 personal Good. But membership in a state is universal, 
 there being no stateless persons in civilized society. It is 
 also universally necessary, and this necessity is not only 
 subjective but is also objective: subjective, because as we 
 have seen, it is the inevitable expression of certain qualities 
 in human nature; objective, because in civilized society 
 there is no escape from membership in a state and subjec- 
 tion to its laws. 
 
 But is this membership voluntary and free, or involuntary 
 and compulsory? Our answer must be that from different 
 points of view it is both voluntary and compulsory. From 
 the point of view of political science it is compulsory, but 
 from the point of view of a philosophy of the state it is vol- 
 untary. Objectively considered, that is from the point of 
 
30 JUSTICE IN TAXATION [366 
 
 view of empirical political science, the state is undoubtedly 
 founded upon force ; and membership in it, support for its 
 maintenance and defense, is compulsory. Without the ex- 
 ercise of force, or the possibility of its exercise, no state 
 could endure. Without it there would be only individual 
 and factional strife, the " war of all against all," barbarism, 
 undeveloped humanity. But important as is the element of 
 force in a state, force viewed as the foundation of the state 
 expresses but a half-truth. Considered from the point of 
 view of subjective political philosophy, the only point of 
 view that reveals the true relation of the individual to the 
 state, the foundation of the state is will.'' Or, if force is the 
 foundation of the state, will is the foundation of force. In 
 fact, the force which the state typifies is but the embodiment 
 of the wills of its members, the objectified will of persons. 
 Hence also membership in the state is both compulsory and 
 voluntary. The state, as force, exacts support and obe- 
 dience, but the state as the embodiment of will is created 
 and maintained by the voluntary acts of free agents — of 
 persons. 
 
 This dual character of the state and of membership in it, a 
 little reflection will make evident. The element of force and 
 compulsion is too self-evident and too admittedly necessary 
 to need special justification ; but that the force of the state 
 can not be permanently effective, except as it is the ex- 
 pression of will, reflection must make equally clear. The 
 fact, indeed, is well illustrated in the practical impossibility 
 of enforcing unpopular laws — of laws out of harmony with 
 the general public sentiment. The fact that the state is a 
 people organized into a political society, originating in a 
 common interest to achieve a common purpose and common 
 end — based upon an idea of a Common Good ^ — is likewise 
 the clearest evidence of the implication of will as its source, 
 
 *See Green, Political Obligations, pp. 12X-141. ^ Ibid., p. 126. 
 
367] ORIGIN AND NATURE OF THE STATE 31 
 
 and that there is not fundamentally any forced subjection to 
 any external power. The purpose of realizing a common 
 good can have no meaning except it be grounded upon con- 
 sent; but consent is choice, choice is an act of will,' and will 
 is based upon an idea of a Good. And, it may be added, in 
 the willing of a common good, the pursuit of a common 
 end, which implies a conscious presentation of the end to the 
 subjects willing, is the final proof that the state is an ethical 
 and not merely a natural institution." 
 
 The real fact is that membership in a state — or the sup- 
 port and obedience which it implies — is a result of compul- 
 sion only in the case of this or that individual, where ignor- 
 ance and selfishness has set up a personal good as opposed to 
 the common good. Without such compulsory conformity 
 to the idea of a common good, dissolution would set in 
 and the state soon cease to be a state ; but this compulsion 
 becomes less and less a factor in the life of a state, while 
 voluntary participation in and support of the state, becomes 
 more general, the more enlightened a people becomes — the 
 more it rises to the idea of a common humanity possessed 
 with common interests and like ends. Upon the state as a 
 whole, indeed, there can be no compulsion, since the state is 
 itself a body of people organized for the maintenance of 
 rights. Compulsion must be by the whole upon the indi- 
 viduals who contravene these rights. Compulsion is from 
 without, and the state is not a body external to itself that 
 can coerce itself. The people as a whole and individually 
 will the enforcement of law for the maintenance of rights. 
 Even the violator of law wills the enforcement of the law 
 upon every member of society, and therefore upon himself. 
 He merely takes his chances for a greater personal, temporary 
 good for himself by evasion of it. 
 
 ' Cf. Aristotle, Nicomachean Ethics, iii, 2, I. 
 * Cf. Green, Political Obligations, p. 132. 
 
32 JUSTICE IN TAXATION [368 
 
 In brief, the case is this : By virtue of a recognition of 
 persons as ends in themselves there arises the idea of the 
 rig-Afs of persons, and therefore also a common interest 
 in the maintenance of these rights by the combined force of 
 all. To this end the state is organized — to centralize the 
 force of the whole upon the individual. For the realization 
 of rights, therefore, two conditions are essential : a concep- 
 tion of persons as possessing rights because of their char- 
 acter as persons, and the collective enforcement of these 
 rights. Or, as Green says, force co-operates "with those 
 ideas without which rights could not exist." ' 
 
 2, The Organic Theory of the State. What, now, is the 
 character of the poHtical organization in which the citizen 
 freely participates for the realization of himself? Is the state 
 a mere aggregate of individuals, a social organism, or an as- 
 sociation of individuals psychically united by a common 
 interest in common ends? An answer to this question will 
 throw light upon the nature of the state and also upon cer- 
 tain principles of taxation, particularly respecting the basis 
 of taxation and the exemption of the minimum of subsistence. 
 Our own answer has practically been given in the preceding 
 discussion, but we may re-enforce our argument by a brief 
 consideration of the opposing theories. 
 
 The theory that the state is a mere aggregate of individ- 
 uals need not detain us long, as there are few, outside of the 
 anarchist or the extreme individualist, who would maintain 
 so irrational a doctrine. Clearly, a mere aggregate of indi- 
 viduals cannot make a society, or a social group, any more 
 than a mere sum of sensations can issue in knowledge. So- 
 ciety, like knowledge, implies unity in multiplicity, but s»ich 
 unity is possible only if there is a common principle that 
 pervades the multiplicity — the individuals or sensations — 
 
 * Cf. Green, Political Obligations, p. 140. 
 
369] ORIGIN AND NATURE OF THE STATE 33 
 
 and binds them together about a common idea, purpose or 
 end. Without this uniting principle there can be no society. 
 
 But is the unity that makes society an organic unity? Is 
 society — the state — an organism? Such has been the ac- 
 cepted doctrine of widely different schools of thought, as 
 Spencer on the one side and German philosophers and econ- 
 omists on the other side. The theory of the social organism 
 is to-day one of the most widely accepted doctrines respect- 
 ing society or the state.' That there is a striking analogy 
 between the structure of the state and an animal organism 
 there can be no doubt; and that this analogy is helpful to a 
 clearer understanding of the nature of the state must also be 
 admitted. But it is a poor logic that argues from an anal- 
 ogy of structure to an identity of character or nature. In- 
 deed, the analogy even with qualification is quite ?s harmful 
 as helpful, since it is suggestive of an entirely erroneous con- 
 ception of the relation of the individual to the state, and log- 
 ically carried out would lead to strange conclusions in prin- 
 ciples of taxation, as in political matters generally. Upon 
 the whole I believe it to be in the interest of scientific truth, 
 notwithstanding certain similarities, to abandon the analogy 
 entirely, not only because of its misleading tendencies but 
 because in its most important features the analogy is entirely 
 false. Without attempting a detailed criticism I would men- 
 tion three facts any one of which is sufficient to overthrow 
 the doctrine that the state is a social organism. These are: 
 I. Dififerences in the character of the units; 2. differences 
 in sentiency of organism and society. 3. dififerences in the 
 end of the units and the whole.' 
 
 I. The units of an organism differ from those of a society 
 
 ' It is interesting to note that there is a growing tendency among American 
 authors lo reject the organic theory of society, as notably, Giddings, Willoughby 
 and Fairbanks. 
 
 *See Spencer, Principles of Sociology, Vol. I, pp. 478-9. 
 
34 JUSTICE IN TAXATION [370 
 
 or state, in their discreteness, their mobility, their conscious- 
 ness. («) The units of an organism are concrete, material 
 things physically united, though endowed also with the phy- 
 sical principle of life. The units that compose a state are 
 materially discrete, though being essentially psychical in 
 their nature are psychically united, {b) The physically 
 united unit of the organism is immobile and performs a spe- 
 cific function in a specific portion of the organism. The 
 psycho-physical unit of the state being discrete has great 
 mobility, and performs various functions in various portions 
 of the body politic. (<r) Not only is the social unit endowed 
 with mobility, but it has also consciousness, indeed, self-con- 
 sciousness. It has, thus, the capacity of the self-direction 
 of its movements and activities in the pursuit of various pur- 
 poses that it sets before itself as desirable to attain. Hence 
 its ability to attach itself to this or that society — "social 
 organism " — or to perform functions not only in the various 
 groups — "organs" — of the same society, but also at one and 
 the same time in dififerent societies or states. In no sense 
 does such consciousness and such self-direction exist in the 
 unit or cell of an organism. There is, in brief, all the differ- 
 ence between a thing and a person. 
 
 2. Again, in the animal organism there is a common sen- 
 sorium for the whole organism which is the center of its 
 sentient and psychical existence. No such sensorium exists 
 for the state, since it exists only in corporeal substance and 
 the state is not such an entity. It has no sentiency or 
 psychical life apart from that manifested in its unitary parts, 
 while in the organism there is no sentiency or psychical life 
 apart from that manifested in the whole. It does not exist 
 in the units or cells. So far as there is any comparison, in- 
 deed, it is between the organism as a whole and the units 
 that make up a state. But since these units are in reality 
 the organism with which the comparison would be made, we 
 
37 1 ] ORIGIN AND NATURE OF THE STATE 35 
 
 should have only what the logicians call an identical prop- 
 osition. 
 
 3. But perhaps the most decisive difference between an 
 organism and the state is in the ends of the units and of the 
 whole. In the organism the cells — units — are merely con- 
 tributory parts in the life of the whole and exist only for the 
 sake of the whole. They have no end of their own and no 
 function apart from the specific organism to which they be- 
 long, and apart from it also no reality. The units of the 
 " social organism," on the other hand, do not exist for the 
 v^^hole, but the whole exists for them, for their development. 
 They are ends in themselves, have functions of their own to 
 perform as well as those for the whole, and have a reality of 
 their own. But the organism, as such, has its end in its own 
 existence, while the state has its end in the highest existence 
 of its members — its constituent parts. In the state the 
 whole has its existence in and for the parts ; in the organism 
 the parts exist in and for the whole. 
 
 These objections, to which others might be added, are a 
 sufficient refutation of the widely-accepted doctrine of a 
 social organism. But if the organic theory of society is 
 false, so also is the extreme individualistic conception of 
 society. If the state is not an organism for which the indi- 
 vidual exists, it is nevertheless true, as we have seen, that it 
 is only in the state that the individual has his highest and 
 most complete existence. The only true theory lies between 
 the two extremes, and sees the mutual dependence of the 
 state and the individual, never forgetting, however, that the 
 ultimate factor of permanent importance is the individual, 
 for whose end all els-^ is at bottom subordinate. 
 
 Important conclusions follow. For if the view that we 
 have held is the true one, it follows that the individual must 
 contribute to the support and maintenance of the state, but 
 that in doing so his own personality, and therefore ethical 
 
36 JUSTICE IN TAXATION 1^372 
 
 considerations, should ever be kept in the foreground. But 
 on the theory of a social organism contributions to the state 
 should be determined rather by principles of expediency 
 than by ethical principles, since the ends of the individual 
 would be of no concern, as they would have existence only 
 for the "organism." On the basis of an extreme individual- 
 ism there would be no contributions to the state, or if so, 
 only voluntary ones. 
 
 3. The Nature of Sovereignty. We are not concerned 
 with all of the characteristics of sovereignty, but only with 
 such characteristics as have any importance in the determina- 
 tion of principles of taxation. We shall, therefore, consider 
 sovereignty only with respect to its dual nature and the 
 characteristics of each, and with respect to the rights of in 
 dividuals. 
 
 I. By common consent the chief attribute of sovereignty 
 is supreme, coercive power over the lives and property of 
 individuals, or associations of individuals, that are members 
 of a state ; a feature that is common to no other social 
 group. But sovereignty is som.ething more than supreme 
 power — force ; but to understand its twofold character it is 
 necessary to keep in mind the distinction between state and 
 government so clearly and forcibly made by Professor Bur- 
 gess.' A state is a body of people organized as a body 
 politic ; a government, as we have seen, is the agent of the 
 state, the instrument for efifecting its will. It is in the gov- 
 ernment that is manifested the direct exercise of sovereignty, 
 but the source of this power is in the people back of the 
 government. It is the former that the statesman or lawyer 
 ordinarily has in mind, but to the political philosopher the 
 latter is of chief importance. The former — the sovereignty 
 of government — we may, with Professor Ritchie,^ call legal 
 
 ' Burgess, Political Science and Constittiiional Law, Vol. i, p. 57. 
 'Ritchie, Principles of State Interference, Appendix, note B. 
 
Of 
 
 373] ORIGIN AND NATURE OF THE STATE 37 
 
 sovereignty; the latter — the sovereignty of the people — 
 ultijnate sovereignty. More definitely, ultimate sovereignty 
 is the organized will of a people respecting life and prop- 
 erty, liberty and justice, or the conditions of human de- 
 velopment. Legal sovereignty, on the other hand, is the 
 immediate exercise of supreme power in accordance with 
 the general will of the people. 
 
 This double aspect of sovereignty may also be character- 
 ized as the sovereignty of force and the sovereignty of will, 
 or objective sovereignty and subjective sovereignty, a view 
 which follows from our conclusions concerning the nature of 
 the state. The force of the state, or its supreme power, and 
 the will of the state are but two aspects of the same thing 
 and mutually supplement each other. For will implies a 
 conscious activity directed towards a definite end, and with- 
 out such activity is only a mere subjective wish. So also 
 sovereign force of a people, as distinct from mere force, 
 implies intelligent direction ; or we may say that such force 
 is intelligently directed will, but with supreme power for the 
 execution of its ends. That is, the intelligently directed 
 force and the will, necessarily in one and the same persons, 
 are, as we have said, obverse sides of the same fundamental 
 fact — will, or the activity of will. Hence, the sovereign 
 power of the slate is the activity, or expression, of the 
 sovereign will of the people of the state, and are related as 
 effect to cause. The primary, subjective fact is will ; the 
 immediate, objective fact is force, power. 
 
 If we consider sovereignty with respect to its sanction, or 
 to the extent of its power, we meet with the same primacy 
 of will. For it must be clear that the sanction for the exer- 
 cise of supreme power by a state, apparently in the fact of 
 the power itself, is in reaHly in the sovereign will. To be 
 otherwise sovereignty would be no more than brute force. 
 Objectively viewed, indeed, the sanction is in the fact of the 
 
38 JUSTICE IN TAXATION [374 
 
 possession of supreme power, but without the originating 
 and directing will there would be no such power, nor does 
 the power extend beyond the range of the organized will of 
 the people, the sovereign will of the state. But for the 
 sovereign will there can be no sanction outside of itself, for 
 will is a fundamental fact so far as our purpose is concerned, 
 since we have not to do with the metaphysics that traces it 
 to the supreme will imminent in the human will. 
 
 So likewise with respect to its extent. Sovereignty, 
 indeed, as an objective fact is, by its very definition, un- 
 limited in the degree and range of its power, since there can 
 be no other power within a state to which it may be sub- 
 ordinate. But since sovereignty is also objectified will it is 
 conditioned by the range of the activity of that will. Thus, 
 again, will is the ultimate fact. The extent, or perhaps 
 better the content, of sovereignty is determined, therefore, 
 by the character of the will which it represents ; that is, by 
 the character of the wills of the persons in whom the sover- 
 eign will is embodied. Therefore, though in a sense will is 
 a law unto itself, sovereign will is, by the very nature of the 
 individual and the nature and purpose of the state, an 
 ethically determined will ; for, as we have seen, it is organ- 
 ized will directed towards the good of every person repre- 
 sented in it. 
 
 2. Is there, then, any limitation to sovereignty, or, are 
 there rights of the individual as against the sovereign power? 
 Politically, it must be admitted, sovereignty is absolute over 
 life and property. Under no other condition can a state 
 endure. The right of the state to exercise compulsion upon 
 the individual has been sufficiently discuf^sed in discussing 
 the character of membership in the state, where it was shown 
 that forced obedience is justified as against the individual 
 who sets his selfish will in opposition to the general will, as 
 in the violation of law, the non-payment of taxes ; though 
 
375] ORIGIN AND NATURE OF THE STATE 3§ 
 
 philosophically there is much truth in the contention of 
 Hegel that the criminal wills his own punishment, wills, 
 that is, the direction of the force of the state against himself. 
 
 But are there no limits to this power of the state over th6 
 individual? Only a moral limit. And hence the only rights 
 of the individual against the state are moral rights. Polit- 
 ically, that is legally, the sovereignty of the state is abso- 
 lute ; but in virtue of its own ethical character, as well as 
 the ethical character of the individuals in whom, upon whoni 
 and for whom it is exercised, it is subject to moral Hmita- 
 tions. Or, there are rights of the individual that the sover- 
 eign power of the state is morally bound to respect, rights 
 that flow from the very law of his being. They are in a 
 very true sense " natural rights." They do not depend upon 
 the state for their existence as rights, but only for a more 
 assured reality. As Green puts it: "The state, or the sov- 
 ereign [he means the government] as the characteristic insti- 
 tution of the state, does not create rights, but gives a fuller 
 reality to rights already existing." ' Not all " natural " rights 
 are made legal rights, but only such as are of universal in- 
 terest ; and legal rights that are not "natural" or moral 
 rights are not permanently enforceable, since they are antag- 
 onistic lo the general will, to the prevailing idea of right. 
 
 The ridicule so commonly heaped upon the doctrine of 
 "natural rights" loses its force if the distinctions we have 
 made between sovereign force and sovereign will be insisted 
 upon ; and only by such distinctions is it possible to arrive 
 at a true philosophy of taxation. The plea for justice in 
 taxation, implied if not expressed in almost every theory of 
 taxation, is proof of the general conviction that there are 
 "natural rights" of the individual which the state does not 
 create but should enforce ; that the sovereign power of the 
 state oitght to be governed by definite conceptions of these 
 
 ' Political Obligations, p. 138. 
 
40 JUSTICE IN TAXATION [376 
 
 rights, by ideaf? of justice; that the state — individuals in 
 association — no less than the individual, should be ethically 
 determined. No other conclusion is possible from the con- 
 ception of the state upheld in this chapter, which conceives 
 it to be the purpose of the state to enforce right and justice 
 to the end of the highest realization of the individual. The 
 right to develop, to realize himself, is fundamental to every 
 individual, and this implies a right to the means necessary 
 to attain the end, but with a recognition of the equal rights 
 of others. These rights of the individual necessarily in- 
 volve obligation on the part of the state, whose very essence 
 it is to provide these conditions, to make possible this de- 
 velopment. It is by virtue of these facts — this conception 
 of the state — that ethical principles in taxation are de- 
 manded ; and it is in accordance with them that ethical 
 principles must be determined. 
 
 Our conception of the nature of rights of the individual, 
 and of the corresponding obligations of the state, may per- 
 haps be made clearer by an illustration. Take, for example, 
 the question of property rights. The right to property, it 
 is usually assumed, is a purely legal creation, property being 
 a question of law and not of right. From the legal point of 
 view this is entirely correct ; but the statement expresses 
 only a half-truth. Property, that which is 07ie's own, is also 
 an economic good, produced directly or indirectly by indi- 
 vidual exertion for the satisfaction of human needs, by which 
 the self is realized. Such economic " good," therefore, be- 
 longs of right — a moral, " natural " right — to the individual 
 as his own, his property, because it is the objective expres- 
 sion of his effort to provide the material means, not only of 
 life but for individual, human advancement. Or, to borrow, 
 again, Hegelian terminology, property is the outward mani- 
 festation of one's self; is, in a sense, the objectified self. 
 Property as a legal right is only a confirmation by the gov- 
 ernment of an already existing moral right. 
 
3 77 J ORIGIN AND NATURE OF THE STATE 41 
 
 The moral, or " natural," right to property the state is 
 bound to respect in its demands upon the individual, as it 
 respects the right to individual de<^elopment. And, in fact, 
 this right to private property in the product of one's own 
 labor has been recognized from the very beginning of eco- 
 nomic life. The case is quite different with land, which as 
 a common inheritance was first held in common and only 
 later, partly as a matter of expediency and partly from a gen- 
 eral recognition of the right to the improvements made upon 
 the land, was made private property. As Locke puts it, 
 whenever one's own labor, which is his own, is added to a 
 natural object " the common right of other men " is ex- 
 cluded." To this right to the products of one's own labor 
 the government gives a legal existence. 
 
 If there is only a legal right to property, if property 
 has only legal existence created by tlic sovereign power of 
 the state, or by the government acting for it, there can be no 
 question of the rights of the individual to any economic 
 goods which the state may demand, or of the obligations of 
 the state respecting them. Expediency, not justice, would 
 supply the norm for taxation. But if property, that is eco- 
 nomic goods, belong of right to the producer of them, as 
 representing his effort and sacrifice to realize the possibilities 
 of his nature, then this right should be recognized as funda- 
 mental in the determination of principles of taxation. Ex- 
 pediency must give place to justice. 
 
 The preceding theory of the nature of the state and the 
 individual, involving reciprocal rights and obligations, will 
 be assumed as the basis of the following discussion of just 
 principles of taxation. The marked feature of this theory is 
 the emphasis that it gives, at least by implication, to the 
 idea that the problem of taxation is an ethical one ; that in 
 taxation as in other matters the good of the individual is the 
 ' Locke, Civi/ Government, ch. v, sec. 27. 
 
42 JUSTICE IN TAXATION [378 
 
 fact of fundamental importance, the ultimate object towards 
 which the operations of the state must tend ; that, in fine, 
 the view-point of the problem of taxation, as of all social 
 phenomena, is man. There will, however, be no attempt to 
 make this theory the basis of new and startling conclusions. 
 The object of this study is rather, upon the basis of a theory 
 of the state that, it is believed, best explains its philosophy, 
 to ascertain the true philosophy of taxation; upon this basis 
 to discover, by analysis and criticism of existing theories, 
 the true principles of taxation ; and above all to give them 
 a rational justification, and not, as is commonly done, merely 
 assume the justice of certain principles without full consid- 
 eration of all that is implied in the mutual relations of the 
 state and the individual. 
 
CHAPTER III 
 
 TAXATION, ECONOMICS AND ETHICS 
 
 I. Taxation 
 
 I. The Nature of a Tax. In the preceding chapter we 
 have learned that the state is an organization of persons 
 effected for the reahzation of a common end, a common 
 " good " — a good that is " common " because it is the good 
 of every member of the state ; that this " good " is from one 
 point of view the attainment of right and justice, while uUi- 
 mately it is the fullest realization of the personalities of the 
 individuals who in their organized totality constitute the 
 state ; that primarily necessary for carrying out the ends of 
 the state is the establishment of government — an organiza- 
 tion within the state — charged with the general purpose of 
 acting as the executive agent of the collective will of the 
 state. 
 
 Thus we find that a government, as the agent of the state 
 in the realization of right and justice and in the maintenance 
 of conditions for the highest possible human development, is 
 a fundamental collective need indispensable to every indi- 
 vidual, to t.\zxy person. Now such a government is not a 
 mere subjective idea; it is also an objective fact, consisting 
 as it docs of a body of persons selected for the performance 
 of its functions, for executing the will of the people — the 
 state. But that these persons may perform the functions of 
 government, certain material conditions, or means, arc neces 
 sary. Hence the need of a government, and so the needs of 
 government, involve two classes of needs : personal service 
 379] 43 
 
44 JUSTICE IN TAXATION [380 
 
 and material goods. But since the persons who act as the 
 government retain their individuality — therefore their per- 
 sonal wants satisfied by means of economic goods — demand 
 for their services resolves itself into a demand for economic 
 goods, or the means for their procurement. Thus, directly 
 or indirectly, the whole needs of a government may be 
 summed up in the need for economic goods ; on the one 
 hand, food, clothing, shelter, etc., for the governing class; 
 and on the other hand, land, buildings and such equipment 
 as is necessary to provide place and material for the per- 
 formance of the service, for the preservation of records, etc., 
 and armament, ships and other essentials for national de- 
 fense, both of which conditions are essential for the mainte- 
 nance of government. Immediately and directly, however, 
 the need of government is revenue — money — by means of 
 which it can procure both service and the material goods 
 necessary for the performance of its functions. 
 
 In the past the services and material goods required by a 
 government have been procured in a variety of ways : By 
 tributes and booty, by feudal services, grants, aids, etc. ; by 
 the cultivation of crown lands, and by direct service to the 
 state — as military duty and the corvee; and latterly, in- 
 directly by means of revenue collected in the form of money 
 from the citizens of the state in which the government in 
 question exercises its functions.' In earlier times tributes 
 and booty constituted the principal source of revenue, in 
 medieval times feudal dues and crown lands were the most 
 important source, but in the modern civilized state the chief 
 source of revenue is taxation — money contributions from the 
 whole people — though fees, fines and, in some countries, 
 government lands and industries yield a not unimiportant 
 part of the total revenue. We are concerned, however, 
 neither with the history of governmental revenue, nor with 
 
 ^ See Wagner, Finanzwissenschajt, ii, sec. 103 et seq. 
 
38 1 ] TAXATION, ECONOMICS AND ETHICS 45 
 
 a study of the principles underlying the various kinds of 
 revenue, but solely with the principles that should deter- 
 mine the collection of that revenue which comes from taxa- 
 tion. 
 
 What, in brief, is the nature of the tax, whose princi- 
 ples we seek to determine? Numerous definitions of a 
 tax have been given, though not with complete success, 
 since too great precision is attempted in a single sentence. 
 For our purpose, at least, it is better to state the funda- 
 mental idea of a tax and afterwards to note its leading char- 
 acteristics. Otherwise there will be inaccuracy of statement, 
 or the need of too many cjualifications. I would, therefore, 
 define a tax as a contribution from individuals out of their 
 private property for the maintenance and defense of govern- 
 ment, to the end that it may perform its functions and the 
 ends of the state be realized. The fact that contributions 
 from private property are necessary for the support and ex- 
 penses of government results, in part, from the change from 
 collective to private economy, and in part, also, from the 
 gift or sale of crown, or national property, to individuals as 
 private property; in a word, to the fact of private property. 
 And so long as the system of private property subsists 
 individuals must contribute from their property for the sup- 
 port of government. But whether the individual is a mem- 
 ber of the state to whose government he contributes is a 
 matter of no importance. The fact is that contributions are 
 due from all (with exceptions to be noted later) over whom 
 a government may directly exercise jurisdiction, as with 
 respect to their property, or for whom any of its functions 
 may be directly performed, as for the defense of their per- 
 sons or property. 
 
 In viewing the tax as a ' contribution ' we have regarded 
 it solely from the point of view of the individual, and we 
 believe that this point of view is justified by a true philos- 
 
46 JUSTICE IN TAXATION ;382 
 
 ophy of the state as emphasizing the most distinctive fea- 
 ture of a tax, philosophically considered. But it must be 
 admitted that there is another aspect to a tax, the point of 
 view of the government. And from this point of view the 
 tax may be considered as a method of procuring a revenue 
 to meet the expenses of the government by means of col- 
 lections from the private property, or income, of individuals. 
 From the point of view of the individual, therefore, a tax is 
 a ' contribution,' from the point of view of the government, 
 a 'collection.' 
 
 2. Characteristics of a Tax. The tax regarded as a 'con- 
 tribution ' or as a • collection,' or as both, does not reveal its 
 full nature, but only its general feature. Particularly im- 
 portant to a clearer understanding of the nature of a tax are 
 two characteristics that are in part suggested by its general 
 feature as described above, (i) First, the question whether 
 a tax is a tax upon persons or property; (2) Second, 
 whether the tax is voluntary or compulsory. Both ques- 
 tions are of importance, not only because their answers will 
 throw light upon the nature of the tax, but because import-^ 
 ant principles of taxation depend upon their determination. 
 
 ( I ) In the first place, then, is a tax imposed upon persons 
 or upon property ? That a tax is nominally levied upon 
 property no one will question. But is the tax in reality, in 
 its essence, a tax upon property ? Economically speaking, 
 or viewed as an objective phenomenon, a tax is undoubtedly 
 upon property. A government requires economic goods in 
 the form of a money revenue to defray its expenses in the 
 performance of its functions; and this revenue is obtained 
 by a collection made upon the private property of individ- 
 uals. Government, in brief, requires property and procures 
 it by assessments upon property and collections of property. 
 But this view of a tax explains only its external and me- 
 chanical character, its /^r;;m/ character. 
 
383] TAXATION, ECONOMICS AND ETHICS 47 
 
 But as the nature of things in general, so also the nature 
 of a tax is not determined by its formal character, but by its 
 subjective idea, its subjective character. And the subjective 
 character of a tax is not determined by the formal relation 
 of a government to economic goods, but by the relation of 
 a state to the persons in whom and for whom it has its ex- 
 istence. For, as we have seen, a state consists of persons 
 organized as a body politic and has for its purpose their 
 gradual development and perfection. State and persons are 
 interdependent and correlative to each other. Consisting of 
 persons, the state has direct relation only to persons and de- 
 pendence upon persons. Government being the agent of 
 the state, it is a necessary incident to it, and hence its main- 
 tenance and support is a requisite to the maintenance and 
 support of the state. And as the agent of the state the de- 
 pendence of the governmeht for support is necessarily the 
 same as that of the state, that is, upon persons. The rela- 
 tion, we repeat, is to persons and the dependence upon per- 
 sons. This is involved in the very idea of the state. More- 
 over, as the state, and so the government, exists for persons 
 and is a necessity to persons, the obligation of support must 
 rest upon persons, as the necessity of support is a necessity 
 to persons. Neither necessity nor obligation could rest upon 
 property as such, though property is e>sential to state and 
 government. The tax is and can be nothing else than a tax 
 upon persons, at least upon our assumption of the true con- 
 ception of the state. Nor, indeed, is the subjectivity of the 
 tax, as a tax upon persons, any less apparent when viewed 
 from its economic standpoint if only the subjective character 
 of property be considered. For, subjectively considered, 
 property is, as wc saw, the objectified self; and hence a tax 
 upon property becomes indirectly a tax upon persons, upon 
 personal productive capacity and ability, upon the economic 
 means of satisfying personal wants, and thus upon the entire 
 personality of the taxpayer. 
 
48 JUSTICE IN TAXATION [384 
 
 Thus, whether we consider the tax with respect to its ne- 
 cessity to the individual and to the corresponding individual 
 responsibility and obligation (involving the relation of the 
 individual to the state\ or with respect to its economic re- 
 lation to the individual, it is equally evident that, while em- 
 pirically and objectively viewed, a tax is upon property, 
 ideally and subjectively viewed it is upon persons. And it 
 may be added that this subjective character of the tax has 
 far-reaching results. It supplies the key not only to the 
 true philosophy of taxation but to the principles by which 
 it should be governed. It also furnishes the key to the 
 solution of many otherwise difficult problems in taxation, 
 and consistently adhered to avoids much error and confusion 
 of ideas. " The subjectivity of the tax." says Vocke, " is the 
 Ariadne thread that must be firmly held if one would avoid 
 a multitude of dangerous mistakes and escape from the laby- 
 rinth of obscure (unklar), if also old views."' 
 
 (2) Granting that a tax is a tax upon the person, is the 
 tax contribution voluntary or compulsory? Again, it is 
 necessary to distinguish between the objective and the sub- 
 jective character of the tax, between the objective fact and 
 the subjective idea. As objectively considered from the 
 view-point of political science, or of the government, the 
 payment of taxes is necessarily com.pulsory. Compulsion, 
 in fact, is a necessary prerogative of objective sovereignty, 
 and a necessarj'' consequence of the right of the state to be. 
 So dominant, indeed, is this aspect of the tax that the idea 
 of compulsion has become a central feature in all of the 
 definitions of a tax by both the legist and the economist, the 
 statesman and the financier. Yet, historically, the begin- 
 nings of the tax, as occasional "aids," "grants" and 
 " donations," were entirely voluntary ; and only gradually, 
 with the change of society from status to contract, and the 
 
 * Vocke, Die Abgaben, Auflagen und die Sieuer, p. 472. 
 
3SS] TAXATION, ECONOMICS AND ETHICS 49 
 
 growing insufficiency of other sources of revenue, did these 
 contributions become regular and compulsory.' And 
 curiously enough, as the consciousness of the unity and 
 universality of interest in a stable government has developed, 
 and particularly with the rise of the democratic state, the 
 compulsory character of tax contributions has become more 
 universal and more rigid. 
 
 But the compulsory feature of the tax represents only one 
 side of the question, either historically or philosophically. 
 For, correlated with the fact of an enlarged range, and the 
 rigidity of compulsion, is the further fact that with the 
 growth of a more definite consciousness of our citizenship, 
 and of the vital relations that we sustain to the state and the 
 state to us, there develops the conviction of an obligation to 
 contribute towards the support of the government, and at 
 the same time the right of the government to exact the con- 
 tribution.' And, indeed, this conviction attests the voluntary 
 character of the tax, at least where its true nature has been 
 duly reflected upon. Nor is the voluntary character of the 
 tax a mere subjective concept arising from conscious re- 
 flection upon the nature of a tax. Taxes are in fact volun- 
 tarily paid, even though the attempt is almost universally 
 made to evade a part of them, or a protest is made against 
 their amount. At least in all cases of pure democracy, or 
 of representative governments elected by the people, the 
 people voluntarily agree, directly or indirectly, to tax them- 
 selves. As was pointed out when discussing the character 
 of membership in a state, the people who voluntarily make 
 up a state voluntarily agree to tax themselves for its support 
 and maintenance ; and only here and there the self-seeking 
 individual endeavors to make himself an exception to the 
 general rule, and upon such it is agreed, individually and 
 
 ^ See Seligman, Essays in Taxation, pp. 1-7. 
 ' Cf. Cohn, The Science of Finance, sec. 192. 
 
JO JUSTICE IN TAXATION [386 
 
 collectively, that compulsion shall be applied, the voluntary 
 and compulsory character of a tax thus implying each other. 
 But not only is the idea of voluntary taxation implied in 
 the voluntary character of membership in a state, it is a 
 necessary consequence of the subjective idea of the tax and 
 of the state. If, as we have maintained, the fundamental 
 basis of the state is will, then the same will that creates the 
 state must will to provide the means for its m.aintenance ; 
 that is, contribution for the support of the state is a volun- 
 tary act. Any other theory can rest only upon the pre- 
 supposition that arbitrary force is the sole foundation of the 
 state, thus failing to distinguish between the empirical state 
 and the Concept state. 
 
 Nevertheless, the subjective idea of taxation docs not 
 exclude the idea of compulsion. On the contrary, compul- 
 sion, we repeat, is in the voluntary conception of the tax ; a 
 fact that must become apparent the moment that we reflect 
 upon the distinction between the general will and the 
 individual self seeking will, between the social will of the 
 individual and his purely personal will, if we may be allowed 
 the distinction. In any case, however, only the subjective 
 idea of the state and the subjective idea of taxation can fur- 
 nish a basis for ethical principles of taxation, for if force is 
 the sole factor in the problem there can be no question of 
 principles, but only of policy; still less a question of ethical 
 principles. But, in fact, even the objective right of compul- 
 sion, as in the enforcement of the law of universality, lests 
 upon the subjective idea, or, perhaps better, the subjective 
 
 fact. 
 
 3. The Limits of Taxation. Granting the power of the 
 state to impose taxes as a sovereign ri^ht — a right, however, 
 that has its source in the general will — are there any limits 
 to the taxing power? If the question be made to refer to 
 the state proper it must be said that no theoretical limits to 
 
3S7] TAXATION, ECONOMICS AND ETHICS 51 
 
 taxation can be assigned ; for if the state is the people 
 organized, and represents their collective will, there can be 
 no limit to its power other than that which it determines for 
 itself, that is, which is determined by the general will in 
 view of common ideals. But in view of the fact that the 
 government, as the agent of the stale, is the practical taxing 
 power, it is wiih reference to the government that the ques- 
 tion has its real hignincance. 
 
 In discussing, then, the limits of the power of the govern- 
 ment in taxation we shall pass over all specific reference to 
 the individual, since this phase of the question constitutes 
 the essence of the main burden of our thesis. Here we wish 
 only to note a few general observations, particularly respect- 
 ing the amount of the tax burden. And in the first place, 
 it may be observed that the limits are relative, not absolute; 
 and that while no a priori rule can be given for the limita- 
 tion, there are, nevertheless, both theoretical and practical 
 limitations. In a general way we may classify the limita- 
 tions under the following heads: political, ethical, cconomicj 
 
 (i) Politically speaking the power of a government in 
 taxation is theoretically limited by its creator, the state ; and 
 most commonly the limit finds objei.tive expression as a con- 
 stitutional limitation, especially under con^titutional govern-' 
 mcnts. That is, the will of the people is the final judge. 
 More than this, in all representative governments the people 
 theoretically exercise a direct control over the amount of the 
 tax in the choice of their representatives. Unfortunately, 
 however, owing to party machinery and political methods, 
 the control of the people is very largely theoretical only. 
 Where, indeed, the government falls into the hands of a 
 "political aristocracy" — the politicians — the people retain 
 only the semblance of power, while the government becomes 
 practically absolute. 
 
 And yet there are practical limitations, for if the burden 
 
52 JUSTICE IN TAXATION [388 
 
 becomes too oppressive there is always danger of a revolu- 
 tion, such, for example as the Revolution of 17S9; unless, 
 perchance, the oppression successfully passes a point where 
 resistance becomes hopeless, as is ap|)arently the present 
 condition of Italy and Spain. In countries of greater en- 
 lightenment and a larger freedom there is the restraint that 
 the fear of being deprived of ofificc, through the ballot, con- 
 stantly exercises. Such a limit is, however, very indefinite. 
 It depends in part on the ability of the governing power to 
 throw the burden on those who have practically the least 
 political power; in part on the ability to use the more or 
 less deceptive method of creating public debts.' Thus, po- 
 litically a government has in practice a wide range of discre- 
 tion in the use of its taxing power, even the constitutional 
 restraint being very largely negatived in the fact that the 
 government interprets the constitutional limitations put 
 upon it. 
 
 (2) But though a government has a large range in taxa- 
 tion politically, there are certain ethical limitations that are 
 incumbent upon it, for the government is, after all, consti- 
 tuted of moral agents. Still, no definite moral rule of limi- 
 tation can be assigned. All that can be said is, that since 
 the government is the agent of the state in making condi- 
 tions possible for the highest human development, it is 
 morally bound to consider the effects of any taxation in 
 retarding this development. But such a limit is relative. It 
 depends, on the one side, on the functions that are assigned 
 to the government, and, on the other side, on the national 
 wealth, on the economic condition of the people. But the 
 functions of government are themselves relative' — relative, 
 
 * C/. Adams, Public Debts, ch. ii and pp. 41-2. 
 
 *The theory of the relativity of the functions of government was warmly criti- 
 cised by the Hegelian scholar, Dr. W. T. Hams, in a discussion following a paper 
 by the writer on " The Functions of Government." 
 
389] TAXATION, ECONOMICS AND ETHICS 53 
 
 that is, to the habits and customs of a people, to their ideals, 
 their intellectual and moral status, their industrial life, their 
 political and economic freedom. The main ethical problem 
 of a government in taxation, however, is the just distribution 
 of the burden, a question we need not discuss here. 
 
 (3) Economically, also, the limitations of taxation have 
 the same relative character that they have ethically, the same 
 indcfiniteness, the same want of definite rule." Neither a 
 fixed percentage of the national wealth, nor a /^r capita 
 average can furnish valid criteria for juilgment. Hardly 
 more satisfactory is the rule that v/ould limit the amount of 
 the tax upon ihe individual to a fixed proportion of his 
 revenue.' No less indefinite is the rule that the amount of/|i 
 taxes should be determined by the needs of the governmental (/ 
 for not only are these needs relative to the functions of the 
 government, but iheir salisfaction is conditioned by the 
 national wealth and general economic circumstances. Of far 
 greater importance, since it conforms both to the ethical 
 ideal and to sound economic policy, is the rule of Stein, 
 sanctioned by Professor Adams,^ that the amount of the tax 
 should be so adjusted as to maintain a due proportion be- 
 tween the satisfaction of the needs of the state and the needs 
 of the individual. True, the difficulty of this rule is the prac- 
 tical determination of a " due proportion," a problem that is 
 very largely influenced by economic and ethical conditions. 
 The solution of ihe problem, however, is made theoretically 
 simi)le by the utilitarian economists by an application of the 
 doctrine of marginal utility. But for reasons that will be given 
 later, utilitarian economics has, to my mind, a very limited 
 application in public finance, being subject to the delusions 
 
 * Cf. Wagner, op. cit., s?cs. 104-106. C/. also Adams, Public Finance, pp. 26-33. 
 ' See Vauban, La Dime Royale. 
 "Adams, The :Science 0/ Finance, p. 28. 
 
54 JUSTICE IN TAXATION [390 
 
 that are so common in reasoning from analogies. Still, the 
 rule is economically and ethically sound as a rule for guid- 
 ance. But, perhaps, the most practical economic rule is that 
 taxes should not be so large as in any way to impair their 
 source. That is, the economic limitation is determined by 
 the efifects of taxes upon industries, and so upon the sources of 
 revenue. This phase of the question we will discuss under 
 the following head. 
 
 II. Taxation and Economics 
 
 The economic life of a people is intimately related to its 
 social life, not only because it is itself a phase of the social 
 life, but also because economic goods form the matcriiil 
 basis of the existence and usefulness of all social groups, — 
 religious, philanthropic, scientific, etc., — as well as of ihc 
 political group itself. That is, social well-being is condi- 
 tioned by economic well-being. Whatever, therefore, affects 
 the economic life, or the economic conditions of a people, 
 affects also its social and so its individual well-being. Hence 
 it becomes of grave importance that a government in exer- 
 cising its power of taxation, in collecting economic goods 
 from individuals, should carefully observe any economic 
 efifects that taxes may have, whether due to the methods of 
 taxation, the amount of the taxes, or to other causes. 
 
 These effects we cannot stop to discuss in any detail, but 
 must confine ourselves to pointing out some of their more 
 important features and tendencies, not only to indicate the 
 character of the problem involved, but also to emphasize the 
 fact that justice in taxation cannot be realized except by due 
 observance of economic laws and principles. For while this 
 aspect of the question is essentially one of the economics of 
 taxation, rather than of the piinciples of taxation, a clear 
 understanding of the character of the effects of a tax is an 
 indispensable prerequisite to the determination of principles ; 
 
39 1] TAXATION, ECONOMICS AND ETHICS 55 
 
 since the justification of principles must be found in tho 
 effects resulting from their practical application, not in a 
 priori formulae. Indeed, it is because of the influence that 
 taxation has upon the production, distribution and consump- 
 tion of wealth that it is of special economic and ethical im- 
 portance to consider its efifccts, since these have an import- 
 ant bearing upon principles of taxation, as no system can be 
 just which unduly and unequally affects the opportunities, or 
 material means of development. In the economic effects 
 of a tax, therefore, and more particularly in the effects upon 
 consumption, is to be found an important factor in determin- 
 ing the justice of principles of taxation. 
 
 I. Taxation and Production. The question specially in- 
 volved here is not that of taxes as an element in the cost of 
 production. It goes, indeed, without saying that taxes must 
 constitute an essential elenient in the cost of production so 
 long as government shall be necessary to guarantee the pro- 
 tection, security and order that make production possible, 
 and so long as taxes shall be necessary for the support of 
 government. More strictly, taxes are a preliminary expense 
 that make the conditions of production possible; but they 
 are none the less a necessary part of the cost. Nor, again, 
 is the question one of the possible use of taxes to further 
 production by the government, as, for example, by the pur- 
 chase of railroads or other industries. This is a question of 
 policy and of the functions of government as well as an 
 economic question, and is too large a subject to be consid- 
 ered here. No, the question with which we are concerned, 
 is the effect of taxes upon the production of individuals, and 
 thus u|)on economic progress and the general material well- 
 being of the individual and of society. 
 
 Do, then, taxes encourage or discourage production? To 
 this question different answers have been given. On the one. 
 side there is the doctrine that taxes necessarily stimulate 
 
I 
 
 56 JUSTICE IN TAXATION [392 
 
 production, a theory successfully overthrown by Hume/ 
 McCulloch accepts the reasoning of Hume but quaUfies his 
 acceptance with the statement that, " it is undoubtedly true 
 that the desire to maintain and improve their condition, 
 stimulates most men to endeavor to discharge the burden of 
 additional taxes by increased industry and economy, without 
 allowing them to encroach on their means of subsistence, or 
 on their fortunes."^ On the other hand, J. B. Say. who 
 viewed the problem from a different aspect, thought it " a 
 glaring absurdity to pretend that taxation contiibutcs to the 
 national wealth," since " capital is but an accumulation of the 
 very products that taxation takes from the subject;" 3 that 
 is, since the source of a tax and of capital is one and the 
 same, and to increase the one is to diminish the other. 
 
 The fact of the case, however, is that general positive 
 statements can not be safely made on either side of the ques- 
 tion. The effects of taxation on production are relative to a 
 great variety of circumstances and conditions, and these a 
 government should, as far as possible, take into account in 
 its tax systems and methods. What the efi'ects of a tax 
 upon production are, depends, in fact, very largely upon the 
 laws of shifting and incidence in taxation. But these laws 
 are by no means simple in character; they depend upon 
 many conditioning influences, and are specific rather than 
 general in their nature. We cannot, however, stop to dis- 
 cuss this aspect of the question further than to call attention 
 to the evident fact that the efifect of a tax, and therefore its 
 
 ' See Hume, Essay on Taxes. 
 
 »McCuUoch, Taxation and Fundins;, p. 7 (ed- 1S52). For similar views of 
 Petty and Temple see Seligman, Shifting and Incidence, p. 16. Cf. also Bear, 
 r Avert e Phnposte, p. 126. Also Mill, Polit. Econ., sec. 3, bk. v, ch. iii. 
 
 » Say, rolitical Economy, bk. iii, ch. viii, sec. i. For conditicns in which the 
 tax may lower or raise the " n.arginal cost," cr influence the rate of remuneration, 
 see Edgeworth, The Pure 1 lieory oj Taxation, in Economic Journal, Vol. vii, 
 
 P-S7- 
 
393 1 TAXATION. ECONOMICS AND ETHICS 57 
 
 incidence, is indissolubly linked with the problem of justice; ] 
 and also to point out some of the more important conditions 
 determining the shifting and incidence of taxation. I'hat is 
 to say, the justice of a tax is largely conditioned by its 
 effects, the effects are intimately connected with its incidence, 
 and the incidence, as we have said, is determined by various 
 conditions. 
 
 Among the more important of such conditions arc the fol- 
 lowing: Whether the industries taxed follow the law of con- 
 stant, increasing or decreasing returns; whether or not they 
 are monopolies ; whether or not there is mobility of capital 
 and labor; whether the tax is based upon value or is a tax 
 upon surplus ; whether the demand for the taxed commo- 
 dity is elastic or inelastic; whether or not the " law of sub- 
 stitution" is possible; whether the tax is high or low; 
 whether special or general ; the condition iA the market for 
 labor and capital; the economic condition of the industry 
 taxed relatively to other industries; the form of the imposi- 
 tion and the kind of taxes, as, for example, whether the tax 
 is direct or indirect; and the kind of industry taxed .md the 
 stage of the industrial process in which the industry is taxed. 
 In brief, whatever conditions, arising from taxation, that have 
 an influence upon price determine the mann.cr and degree of 
 shifting and incidence, since these are essentially phenomena 
 of price, the objective determination of which is the law of 
 demand and supply, the subjective determination the law of 
 marginal utility.' 
 
 ' For the best statement of the history and theory of shifting and incidence, see 
 Seligman, Shifting and Incidence of Taxation. See also Kaizl, Die I ehre vcn 
 der Uberw Iziivg der Steiiem. For a theoretical stufly of the fir^t four *' condi- 
 tions" mentioned in the text see the al:le article of Prof. Edgevvoith on "The I'ure 
 'theory of Taxation," Economic Join nal. Vol. vii. Thcsi conditions are net 
 treated by Prof. Edgeworth singly but in groups of assumed combinations. He 
 takfs into consideration also the effects of '"short" and "long peri ds," and 
 whether the lax is on rival or coml'lementai-y industrits. 'Ihe artiJe is a splendid 
 illustration of both the complexity and the difficulty of the proLlcm of "shilting 
 and incidence." 
 
58 ^.^ JUSTICE IN TAXATION- [394 
 
 It'is the influences of such individual or combined condi- 
 tions as the above that help to determine the operation of a 
 tax, and without a clear understanding of these influences 
 it is impossible to determine the effect of a tax upon produc- 
 tion. And yet they tell us but one side of the problem. 
 By studying the effect of these influences we may learn the 
 effect of a tax upon price and upon the demand and supply 
 for the products taxed, but not necessarily the effect of a 
 tax upon production. The question of the effect of a tax 
 upon production is primarily and immediately a question of 
 its effect upon the accumulation and employment of capital^ 
 and upon the zeal and industry of labor. An important 
 clement in the solution of this problem is undoubtedly the 
 influence of demand and supply operating through price, 
 itself largely determined by the above-mentioned conditions. 
 But this is not the only element of the problem. It is 
 necessary to know, not only the effect of a tax upon price 
 and demand, but also the effect of a tax-deteimined price 
 upon the profits of capital and labor. Nor even then can 
 we say with any definiteness what effect these combined 
 influences will have upon production. Positive statements 
 concerning the effects can result only from an incomplete 
 apprehension of the facts involved. 
 
 Let us take, for example, the assumption of Say, that 
 taxes always tend to cimini>h prcduction for the reason that 
 what is spent as a tax would otherwise have been consumed 
 as capital; or the opposite theory, that a tax tends to stimu- 
 late productive activity, or to " create the ability to bear it," 
 en the ground that the desire to maintain a certain standard 
 of living stimulates to greater industry and labor whenever a 
 tax curtails the means of maintaining the desired standard. 
 The fact is that both assumptions aie only partial truths. In 
 both also there is a Jion seqiiiltir. Not only is it clearly not 
 a fact that what is spent as a tax would otherwise have beea 
 
395] TAXATION, ECONOMICS AND ETHICS 59 
 
 employed as capital, but it by no means follows that, because 
 both the tax and capital have the same source, to increase 
 the one is to diminish the other, since all other expenditures 
 have the same source. How that part of the income which 
 is consumed as taxes would have been spent but for the tax 
 depends in part, indeed, upon the possibility of profits, but 
 also in part upon the character and habits of the individual 
 taxpayer. And in like manner is determined whether a tax 
 effects a greater utility of industry and labor. Influences are 
 at work in both directions and the final efTect is a resultant of 
 many opposing forces. But whatever the general tendencies, . 
 there can be no doubt but that an excessive tax curtails pro- [ 
 duction, while a moderate tax may, at least under certain; 
 circumstances, afiford a stimulus to greater production or to' 
 larger accumulations of capital.^ 
 
 It is, indeed, in the fact that taxes may work both waya 
 upon both capital and labor, may even have one efifect upon 
 one class of producers and the opposite effect upon another 
 class, that makes it of such importance that a government, 
 in the determination of the amount and adjustment of taxes, 
 should carefully consider their possible effects, and so the 
 conditions under which those effects are likely to be pro- 
 duced. Nor is this importance confined to the immediate 
 effect of taxes upon production. It is shown as well in the 
 logical results of our assumptions. To assume, for example, 
 that taxes always encourage production is not only to assume 
 a fallacious doctrine, but also a dangerous principle, since 
 there would be no logical limit to the extent of taxation;, 
 while the assumption that taxes always lessen production,, 
 besides being false, tends to exaggerate the rights of the in- 
 dividual as against the state and to cripple the necessary 
 needs of the government. The possible indirect effects upon 
 
 * C/. Marshall, Prhidp/es of F.coromtcs, p. 28S (2d ec'.). Also Pantaleoni 
 Teoria dclla Fressioiie Tribtilaria, p. 41. 
 
6o JUSTICE IN TAXATION [396 
 
 production would be far reaching. Thus, both because of 
 its direct and its indirect effects, a government is morally 
 bound to consider the effect of its tax impositions, both with 
 respect to their amount and their adjustment. The constant 
 /aim should be to interfere as little as possible with the pro- 
 r cesses of production. 
 
 Whether a government should encourage production by 
 means of protective tariffs or otherwise — creating limited 
 legal monopolies — is a different matter. This is a question 
 of the functions of government and of governmental policy, 
 not of public finance. But when a government by its tax 
 system, or by the amount of its taxes, unnecessarily curtails 
 production or produces unequal conditions of production, it 
 does an injustice to the taxpayers affected by lessening their 
 ability, absolutely or relatively, to satisfy their wants ; and 
 /at the same time lessens its own efificiency by diminishing 
 the source of its material means of usefulness ; thus con- 
 stantly threatening stagnation, if not degeneracy, instead of 
 promoting the highest development, intellectually, morally 
 and spiritually — by promoting the material conditions of 
 such development. That the task of the government in duly 
 \ observing the efifects of its taxes and tax system upon pro- 
 ; duction is a difificult one can not be denied. The complexity 
 ; of the conditions that enter into the problem makes this in- 
 5 evitable. Nevertheless, consideration of these effects is nec- 
 ; essary, both that production in general may not be unnec- 
 essarily checked, and that the production of one class may 
 not be promoted at the expense of another class, thus effect- 
 ing inequalities and injustice, instead of the equality and 
 \ justice for which a government stands. 
 
 2. Taxation and Distribution. The effect of taxation 
 upon distribution is not less important than its effect upon 
 production, not only because of the influence of the distribu- 
 tion of wealth upon economic and social conditions, but 
 
357] TAXATION, ECONOMICS AND ETHICS 6 1 
 
 because the distribution of wealth is a very large factor in 
 the determination of the character, methods and amount of 
 production. For instance, large industries and large-scale 
 production are economic phenomena which have their eco- 
 nomic basis in large accumulations of capital, which change 
 the whole relation of capital to labor as well as relative social 
 conditions. Both the economic and social importance of 
 distribution, therefore, demand that careful consideration 
 should be given to the possible efifects of taxation upon the 
 distribution of wealth. The importance of the social and 
 economic effects of the distribution of wealth must be as- 
 sumed as self-evident. To adequately treat the question 
 here would take us too far afield into a discussion of social 
 and economic problems. I would, however, call attention 
 to four different ways in which taxes do, or may, influence 
 distribution ; and at the same time call attention to some of 
 the more immediate effects. 
 
 (i ) In the first place there is the inevitable change in the 
 distribution of wealth consequent upon taxation and the 
 expenditure of its proceeds. Wealth is taken from the pock- 
 ets of the producing class and transferred to the pockets of 
 those who perform the services of the government or pro- 
 vide it with material goods. This is unavoidable in modern 
 political societies where co-operative division of labor is so 
 fully realized. But no hardship or injustice is thereby in- 
 curred. Those who provide the revenue and those who con- 
 sume it in performing the functions of government are 
 equally supporters and maintainers of the government, and 
 both are equally gainers by this division of labor. There is 
 no injustice, therefore, in this effect of taxation upon distri- 
 bution, so long, at least, as the effect is but the normal result 
 of legitimate taxation to meet the essential needs of the 
 government. 
 
 (2) The second method by which taxation may (indeed 
 
62 JUSTICE IN TAXATION [398 
 
 does) effect dis'iibution is by the tax system itself. This 
 method is essentially indirect. Two illustrations will make 
 this method sufficiently clear : Protective tariffs and per- 
 sonal property taxes. 
 
 Granting the legitimacy and justice of protective tariffs, 
 their first and more direct effect is to divert wealth from em- 
 ployment in natural channels of production to artificially 
 created channels. This in itself may be an economic gain 
 to the whole community as well as to those immediately 
 concerned. But however this may be, protective tariffs have 
 the further effect of establishing special privileges to certain 
 classes, making possible the colossal fortunes of the Carne- 
 •gies and Rockefellers. The same is true of any other 
 monopoly-creating tax. The importance of these changes 
 lies not only in their reactive effects upon the methods and 
 amount of production, but also in widening social distinc- 
 tions and creating social discontent. 
 
 The distribution effected by the abominable system of per- 
 sonal property taxes in the United States, while more indi- 
 rect and less perceptible is not less certain, and at the same 
 time results only in the most patent injustice. Such taxation 
 is practically regressive ; the richer classes having larger ac- 
 cumulations of personal property, more easily evade the tax 
 assessor. The tendency of such a tax system is to foster 
 the growth of large fortunes by relieving them of their just 
 burdens, but at the expense of the smaller fortune. One 
 ) class in society pays the taxes of the other class. The eco- 
 nomic effect is precisely the same as if property was forcibly 
 taken from the one class and transferred to the possession of 
 the other. To this economic injustice there is added the 
 political injustice of throwing the heaviest burden of taxa- 
 tion upon those who have the least ability to bear it. Thus, 
 again, instead of promoting justice and equality the govern- 
 ment is made an instrument in fostering injustice and un- 
 
399] TAXATION, ECONOMICS AND ETHICS 63 
 
 equal opportunities, with ths attendant social ncqualities. 
 The same unjust influence upon distribution is eff^xted by 
 any system of taxation that results in an unequal assessment 
 and collection of the tax burden. 
 
 (3) The influence of the rate of taxation upon distribu- 
 tion involves chiefly the question of proT;rcssive taxation, for 
 a strictly proportional tax leaves the same relative distribu- 
 tion of wealth after as before the tax, effecting di>tribution 
 only in such manner as is inseparable from the nature and 
 use of taxation. The maintenance of the same relative 
 economic conditions, or the equalizing of the burdens of tax- 
 ation, may also be the special object of the progressive rate, 
 and so far as this purpose is carried out the progressive rate 
 simply corrects the defects of the proportional rate by ao 
 compl'sh'ng in fact what it stands for in theory. The justice 
 of the progressive rate from this point of view will come up 
 for discussion in a future chapter. We need only to observe 
 here that however just the progressive tax may be it e.Tects 
 a different distribution from that entailed by a proportional 
 tax, though only such as is incident to the system itself. 
 
 It is a far more serious question where progressive Ir.xn- 
 tion is used with the deliberate purpose of effecting an arti- 
 ficial distribution of wealth, as in the social-political theory 
 of Wagner.' Such a use of taxation is, however, a social 
 use and does not strictly come within the province of public 
 finance.'' Moreover, it rests upon the assumption that it is' 
 a proper function of government to equalize the fortunes ofj 
 individuals. This, however, is not an admitted fanction of 
 government in the modern state, though it was practiced by 
 the ancient Hebrews, ^ was attempted by some of the Spar- 
 
 ^ Op. cit , ii, pj). 207, 3S5-6 and 455-9. Also i, p. 47. 
 
 * Cf. Meyer op. cit., sac. 67 ; Vocke, vp.cii., p. 43, andMarzano, Compendia di 
 Scienza delle finance, p. 116. 
 
 ^ Levi/icus, x\v, ;o. 
 
I 
 
 64 JUSTICE IN TAXATION [400 
 
 tan kings,* and recommended by the agrarian reformers of 
 ancient Romc,'^ At the present time this doctrine finds de- 
 fenders only in the different schools of socialism. The 
 weakness of the whole doctrine is excellently summed up by 
 Professor S-ligman, when he says that " a legal equality 
 which would attempt to force an equality of fortune in the 
 face of inevitable inequalities of native ability would be a 
 travesty of justice."^ Further comment is unnecessary. 
 
 (4) A final use of the progressive rate is to effect a com- 
 plete revolution in the distribution of wealth by converting 
 private wealth into public wealth by a process of confisca- 
 tion. This is advocated only by the extremes of socialism, 
 and, with respect to land, by the disciples of Henry George. 
 This use of the lax is so foreign to present ethical standards 
 that it has no practical significance and needs not to be dis- 
 cussed here. 
 
 In the brief summary that we have attempted of the possi- 
 ble influence of taxation upon distribution, inclusive of the 
 effects upon social and economic conditions — upon spiritual 
 as well as upon material development — sufficient, I think, 
 has been said to emphasize the necessity of great care lest 
 distribution be too arbitrarily and too unnecessarily affected 
 by taxes. It illustrates also the truth of the statement of 
 Professor Adams, that "the distribution of wealth within a 
 country is of as much importance to its public economy as 
 the possession of wealth. "•♦ 
 
 But besides its social and economic importance, the use of 
 taxation to effect a distribution of wealth other than is 
 entailed in the system itself, has the further importance that 
 it violates the " natural right" to property as understood in 
 the preceding chapter. As was there indicated the claim of 
 
 ^ See Plutarch's Lives of A^is and Cleomenet. 
 
 *See Plutarch's Lives of the Gracchi. * Progressive Taxation, p. C9. 
 
 * Adams, L'ul/hc Debts, p. 151. 
 
40l] TAXATION, ECONOMICS AND ETHICS 65 
 
 the state, or government, is limited to its needs. To go 
 farther than this, to appropriate the property of some to be- 
 stow it upon others, however indirectly, is to transgress the 
 " natural law," is to commit an injustice. 
 
 3. Taxation and Consumption. Only recently has con- 
 sumption played any important part in either economics or 
 public finance. With the classical economists the safe-guard- 
 ing of production was regarded as a prime element in a sound 
 theory of taxation ; while the ethical economists and the 
 socialists have given special attention to distribution — both 
 the distribution of the tax burden and the use of the tax in 
 the distribution of wealth. It has remained for the subjec- 
 tive economists — the Austrian school — to lay emphasis upon 
 the relation of taxation to consumption. 
 
 Of these several interests consumption is of most vital 
 importance; for objectively and economically considered, 
 consumption is the end of all production, and we may add 
 also of distribution ; while subjectively and ethically con- 
 sidered, consumption is the process by which the wants of 
 the individual are satisfied, so far as they are materially de- 
 termined — that is, the self-perfected, realized. Emphasis 
 upon consumption, therefore, is a recognition of man as a 
 compound of needs whose realization is the essence of his 
 being. It changes the view-point from the thing to the per- 
 son, the means to the end. Not the creation of wealth, but 
 the use of it, is made the fact of most importance.' In the 
 power of consumption is seen the best measure of material 
 well-being; but material well-being, at least until a certain 
 standard is attained, has a most important bearing upon the 
 development of the whole spiritual life of man. 
 
 In fact, consumption, both by its amount and by its char- 
 acter, entails far-reaching results. It profoundly affects pro- 
 duction by affecting the efficiency of labor ; for efficiency is 
 
 * Cf. Walker, Political Economy^ p. 294, 
 
66 JUSTICE IN TAXATION [402 
 
 determined more by what one consumes than by what he 
 produces. The amount and character of consumption affect 
 also distribution, as, for example, by their influence upon 
 the standard of life, which, in turn, has its efTect upon effi- 
 ciency. Whatever, therefore, affects consumption affects the 
 whole economic life; but whatever afifects the economic life 
 affects, directly or indirectly, man's complete development. 
 For these reasons, and because private property is an ex- 
 pression of human personality, of the effort to satisfy human 
 wants, the government is in duty bound to observe the great- 
 est care that its system of taxation does not unnecessarily 
 interfere with individual consumption. 
 
 But the practical determination of what part of individual 
 wealth should go to the satisfaction of individual wants, and 
 what part should be given to meet the needs of the govern- 
 ment — to satisfy collective needs — is a problem of the most 
 difficult character, involving as it does so many complicated 
 conditions and circumstances. As worked out by the 
 Austrian economists,' however, the theoretical solution of 
 the problem is made simple enough, by placing the satisfac- 
 tion of collective needs upon exactly the same footing as the 
 satisfaction of private needs. That is to say, the same laws 
 of subjective values, of marginal utility, that rule in private 
 economy are made to rule in public economy.^ The doc- 
 trine, however, contains no new principle, but applies to 
 
 ^ Meyer, Sax and Wieser. This school has a strong following in Italy, Ricca- 
 Salerno being one of its most able exponents. His Scienza delta Finanza is an 
 excellent and lucid resume of the more pretentious work of Sax. 
 
 ''■ The credit of first applying the economic theory of subjective values to finance 
 is claimed by Sax for himself. His theory, however, is substantially the same as 
 that of Robert Meyer, in spite of the effort to prove a difference. The Italian 
 economists do not concede the credit to the Austrians. Mazzola, in a note to his 
 I Dati Scientifici delta Finanza Pubtica, p. 24, claims the honor for Pantaleoni, 
 referring to an article published by him in 1883 in the Kassegna liatiana, en- 
 titled : Contributo alia Teoria delle Sped Publichi. 
 
403] TAXATION, ECONOMICS AND ETHICS 67 
 
 finance as to economics a principle long familiar to utilitar- 
 ian, or better Hedonistic, ethics — the obtainment of the 
 greatest possible pleasure at the least possible sacrifice. 
 
 We may for the present dismiss this theory with the re- 
 mark, that while most extravagant claims are made for it 
 (which will be considered more fully later) it correctly 
 recognizes the fact that the satisfaction of collective and of 
 private needs is, in a sense, mutually exclusive, or that 
 taxes lessen the consuming power of the taxpayer. It is 
 this fact that makes the problem such an important one. 
 Yet it is quite as true to say that the satisfaction of collective 
 and of private needs supplement each other, for the satisfac- 
 tion of the former conditions, as we have seen, the satisfac- 
 tion of the latter, thus adding to the complexity of the 
 problem. 
 
 We can not stop to discuss this aspect of the question 
 further. We have succeeded in our purpose if we have made 
 clear that taxation and economics are most intimately re- 
 lated, and have made clear the importance, and, at the same 
 time, the difficulty of the question involved. For it has been 
 shown that, indispensable as they are, taxes may be so levied 
 as to work most injurious and unjust results upon produc- 
 tion, distribution and consumption through the operation of 
 economic laws, thus materially afifecting human well-being. 
 We have seen, also, that the whole question revolves about 
 the problem of shifting and incidence in taxation, which, as 
 we have seen, is determined by the operation of the phe- 
 nomenon of price, which itself is objectively determined by 
 the law of demand and supply and subjectively by the law 
 of marginal utility. It is, then, to these economic influences 
 and economic results that the statesman should give careful 
 attention if justice is to be an aim in taxation. But while 
 very definite conclusions may not be possible, Professor 
 Seligman has shown that substantial results may be obtained 
 
6S JUSTICE IN TAXATION [404 
 
 as a guidance in legislation.' Without such observance of 
 economic laws, conditions and results the first requirements 
 of ethical taxation are put to naught. 
 
 III. Taxation and Ethics 
 
 Important as is a knowledge of economic laws and forces 
 in questions of taxation, this knowledge will not of itself de- 
 termine the true principles on which taxes should be based. 
 From such knowledge we may learn the economic results of 
 kinds and systems of taxes, but nothing at all of principles, 
 that is, of ethical principles. Actual results tell of condi- 
 tions as they are ; ethical principles of conditions as they 
 should be. Yet, without a knowledge of the former it would 
 not be possible to prescribe the latter. Actual economic 
 results have also the further significance that they indicate 
 the extent to which the ideal, contained in the principle, is 
 realized. They are at once, therefore, a manifestation and a 
 guide. It is, however, the ethical principle that is of real 
 primary importance ; for the ethical principle is the funda- 
 mental principle of taxation, as the ethical basis (as we shall 
 have occasion to see) is the ultimate basis. 
 
 In thus insisting upon the paramountcy of ethical princi- 
 ples in taxation, that the ends of justice can not be attained 
 by the mere play of economic forces, I am aware of running 
 counter to a theory, implied in the doctrines of the classical 
 economists, and expressly championed by Sax and his 
 school.' For according to Sax, at least, economic laws are 
 but the expression of the process of the realization of justice ; 
 or, justice is simply the realization of economic laws, par- 
 ticularly of the subjective law of marginal utility. In eco- 
 nomic laws are found the alpha and omega of justice in tax- 
 ation. Yet justice is not to be directly aimed at, for, so we 
 
 ' See, Shifting and Incidence of Taxation, ch. viji. 
 
 * Cf. Sax, GrundUgungf 83, and Ricca-Salerno, op. cit., bk. ii, ch. vi. 
 
405] TAXATION, ECONOMICS AND ETHICS 69 
 
 are told, ethics has no place in public finance. So far as 
 public finance is concerned ethical ends are a consequence, 
 not an aim.' 
 
 To this doctrine two important objections may be opposed : 
 It rests upon the false Hedonistic assumption that pleasure 
 is the highest Good ; it assumes that economic motives and 
 ends are one and the same as ethical motives and ends. 
 That the highest Good, — the ethical end, — is not pleasure, it 
 is not our place to demonstrate here;^ but it must be ad- 
 mitted that it is not consonant with a theory that makes the 
 ultimate end of the state the realization, or perfection of man. 
 Pleasure (in the sense of satisfaction, happiness — Aristotle's 
 Eudaemonia'^ — not Hedonistic pleasure) is an accompani- 
 ment, a necessary incident, if you will, but is not itself the 
 end.* Hence economic pleasure, as such, is by no means 
 necessarily identical with 'ethical ends. Whether or not it 
 is so, depends upon the idea of the Good whose realization 
 is sought. 
 
 However closely related, therefore, economics and ethics 
 may be in certain phases of taxation, ethical motives and 
 ends are entirely distinct from economic motives and ends. 
 Purely economic motives are founded upon the idea of a 
 selfish pleasure of a more or less material character, whose 
 realization is the economic end. Ethical motives, on the 
 contrary, are founded upon the idea of a Good of a spiritual 
 character — the fulfilment of the possibilities of our nature. 
 It is not a selfish Good, for it is recognized as the "good" 
 of others as well as for the self. Its realization is the ethical 
 
 ' This is also implied throughout by Sax in spite of his contention to the con- 
 trary. 
 
 *See Green, Prolegomena, bk. iii, ch. i. 
 
 * Described by a German philosopher as " the culture, the all-sided develop- 
 ment of all human faculties, and the satisfaction which is founded thereon." Cf. 
 also Paulsen, System of Ethics, p. 49. 
 
 * Cf. Green, Ibid., sees. 158 and 161. 
 
70 JUSTICE IN TAXATION [406 
 
 end, which involves justice in the relations of man to man, 
 individually and collectively. And because the ethical end 
 is the highest end it is paramount over all other ends ; hence 
 over economic ends, and thus, also, in matters of taxation. 
 We can not, then, admit that in questions of taxation eco- 
 nomic self-interest is the measure of the individually or the 
 socially just, however dependent our notions of ethical justice 
 may be upon economic results. 
 
 For insisting upon an essential distinction between eco- 
 nomics and ethics, and that the question of taxation is funda- 
 mentally an ethical question, no apology is needed. The 
 supremacy of the ethical element is the only logical deduc- 
 tion from the theory of the state and the individual presented 
 in the foregoing chapter. Indeed, from the ethical nature 
 of man it follows of necessity, or as the old English moral- 
 ists ' would say, it is "according to the reason of things," 
 that the ethical element should be the ruling element in all 
 social relations and social institutions. In fact, it is true of 
 taxation, and of the thousand and one social questions that 
 ■ are agitating the world to-day, that no satisfactory or per- 
 manent solution is possible which does not conform to an 
 ethical standard, though that standard pertains directly to 
 economic conditions. That is, there should be an ethical 
 standard of economic conditions, for as Mill well says : "The 
 \first thing in every practical discussion should be to know 
 what perfection is.''^" 
 
 If we are at all correct in our conclusion, even more unten- 
 able than the theory of Sax is the position maintained by 
 ; McCulloch: That since perfect equality is unattainable, "in 
 1 laying down a practical rule that is to apply to all taxes, 
 equality of contribution is of inferior consideration;" and 
 that, " It is the business of the legislator to look at the prac- 
 tical influence of different taxes, and to resort by preference 
 
 ^ Cudworth, Clark and Price. ' Political Ecotiomy, v. 2, sec. 2. 
 
407] TAXATION, ECONOMICS AND ETHICS 71 
 
 to those by which the revenue may be raised with the small- 
 est inconvenience."' The error of this doctrine is not so 
 much in the premise as in the conclusion. For the doctrine 
 erroneously assumes that the sa/us populi, which is held to 
 be of "prime consideration," may be permanently antagon- 
 istic to ethical considerations ; that policy and justice may 
 be permanently opposed to each other. No, the truth is 
 with Madame Royer, who places both " utility and just ce 
 above the narrow consideration of policy ; " but adds, that 
 if "justice is at variance with utility, we say that justice is I 
 preferable."' The fact is that there can be no true social 
 policy, no true policy in any of the social relations of life, 
 that is not based upon ideas of justice. Justice is the foun- 
 dation of a permanent social order, and a permanent social 
 peace. Only upon the grounds of a "policy" best known 
 to the " politician," or through want of a wholesome influence 
 at the ballot box of a powerful minority (unless, perchance, 
 the masses are soothed by ignorance, lethargy, or hope- 
 lessness) can a system of taxes long endure, that is recog- 
 nized by all competent judges as full of injustice. 3 
 
 Our conclusion, then, is: That the problem of taxation 
 is partly economic and partly (but also essentially) ethical, 
 the two elements being inseparably related. It is an econ- - 
 
 ' McCulloch, Taxation and Funding, p. 18 (2d Ed.)- Cf. also Schmoller, who 
 opposes to the principle of BeitragsfShigkeit, the principle : " Nimrn wo es geht." 
 Quoted by Meyer, Die Principien der gerechten Besieuerung, p. 128. The declar- 
 ation of Held, that " the practice of using those taxes over which there is the 
 least complaint is the wisest," is not an acquiescence with McCulloch ; for with 
 Held justice is not sacrificed as end, or opposed to policy. On the contrary, it is 
 policy to heed the " complaint" because it is the surest (negative) guide to the 
 realization of justice, the surest measure " fiir die Grosse personlicher Opfer." 
 (^Einkontfnensteuer, p. 115.) 
 
 '■' Theorie de Plmpot, Introduction, pp. 14-5. 
 
 'As note the tax systems in many of the American Commonwealths (See Ely, 
 Taxation in American States and Cities, and Seligman, " The General Property 
 Tax," in Essays in Taxation). 
 
72 JUSTICE IN TAXATION [408 
 
 cmic question in that it has to do with economic goods, con- 
 ditions, and relations ; ethical, in that it has to do with man 
 as a spiritual and ethical entity, at once an end in himself, 
 and the end of all social life. Each supplements the other. 
 As Bastable says: "The important problem of justice in 
 taxation is indeed an ethical one, but until its economic 
 effects are known it is impossible to say whether any given 
 form of taxation is just or the reverse."' 
 
 In insisting so strongly upon the ethical character of tax- 
 ation no pretension is made that absolute justice is attain- 
 able. In human affairs only relative justice is possible. But 
 we can not reach the highest approximate to justice without 
 first knowing, as Mill says, what perfection is, and the "high- 
 est approximate" is all that can be desired. 
 
 But the problem of taxation is something more than an 
 economic and an ethical one ; it is also political. For our 
 conception of the justice in taxation is quite as dependent 
 upon our conception of the nature of the state and of the 
 functions of government, as it is upon economic results.' 
 But the political conceptions, like the desired economic re- 
 sults, are relative to ideals of justice. 
 
 We may therefore consider taxation as having three bases 
 — political, economic, and ethical — which though distinct 
 are inseparably related. Upon our conception of these 
 bases, and of their relative importance, must our principles 
 of taxation be determined. Sometimes the one and some- 
 times the other is assumed as the only basis, with a conse- 
 quent narrowness of views and one-sidedness of conclusions. 
 They must be considered in their mutual relation and mutual 
 dependence. We shall consider these bases somewhat his- 
 torically and critically in the three following chapters. 
 
 ' Public Finance, p. 9. Cf. also p. 273. 
 
 * La justice dans 1' impot est une conception extr^mement difficile ^ formuler 
 parce qu' elle depend de 1' idee qu' on se fait des droits et des devoirs des 
 gouvernements. Leon Say, La question des impots, p. 66. 
 
CHAPTER IV. 
 
 THE POLITICAL BASIS AND PRINCIPLES OF TAXATION 
 
 As we have seen in the previous chapter, taxation is a 
 contribution from the private property of the individual for 
 the support of the government — for the satisfaction of a 
 common need. It arises out of the nature of the state, the 
 necessity of government, and the prevailing system of pri- 
 vate economy. It was further shown that the tax may be 
 regarded as voluntary or compulsory according to the point 
 of view in question ; that it is influenced by economic con- 
 ditions and involves economic results ; and that above all, 
 taxation is a supremely ethical question which must be de- 
 termined by ethical standards and in conformity to ethical 
 ideals. 
 
 Now these three phases —the political, the economic, and 
 the ethical — are not separate, but are inseparable phases of 
 the problem of taxation. They nevertheless afford distinct 
 bases of taxation — bases, however, that lead to false results 
 if taken in their isolation and not regarded in their in- 
 terdependence and unity. The primary basis is the polit- 
 ical basis, since the whole problem grows out of the relation 
 of the individual to the state. But since economic goods 
 are necessarily involved, and so the economic relations of 
 the individual to the state, there is, following the political 
 basis and inseparable from it, an economic basis. And 
 finally, because of the ethical character of the taxable sub- 
 ject, and of the ethical character of all social relations, there 
 must be an ethical basis which must act as a guiding norm 
 in the determination of the principles that should control 
 409] 73 
 
74 JUSTICE IN TAXATION [410 
 
 taxation ; since because of the supremely ethical character 
 of the problem, the highest demand is the attainment of 
 justice. 
 
 By the ' political basis ' of taxation is understood that 
 basis which rests upon a definite theory of the state, and 
 from which certain principles of taxation may be deduced ; 
 or it is the determination of principles of taxation in accord- 
 ance with an accepted theory of the state, or is the logical 
 outcome of such a theory. Hence the possibility of a wide 
 range of principles, varying from those of the extreme indi- 
 vidualist to those of the extreme socialist. These we can 
 not attempt to consider in any detail, but must confine our- 
 selves to a few of the more important theories — those that 
 have the greatest influence, either theoretical or practical. 
 Such are : the contract theory, the evolution theory, the 
 utilitarian theory, and the social theories (as anarchism, 
 communism and socialism). 
 
 Now in examining these views of the principles of tax- 
 ation, as related to and dependent upon a theory of the 
 state, two things must be constantly kept in mind : The 
 deductions made by the advocates of a given theory, and 
 the logical deductions of that theory. It is also important 
 to note whether the question is viewed in its entirety, or 
 whether the political basis is regarded as the only basis. 
 Before, however, discussing the theories mentioned we may 
 mention briefly previous conceptions of the state and 
 taxation. 
 
 In the time of Plato and Aristotle little was known or 
 thought regarding principles of taxation, though both Plato 
 and Aristotle elaborated a theory of the state. Had they 
 attempted, however, to determine principles of taxation from 
 their theories of the state, it is certain that they would have 
 sought principles consistent with the highest development 
 of the individual. The principles of Plato would have 
 
411 POLITICAL BASIS AND PRINCIPLES 75 
 
 looked towards the attainment of ideal justice, while those of 
 Aristotle would have been adjusted to a ' mean ' capable of 
 realizing an approximation to justice. But with both, ethical 
 results, as they saw them, would have stood in the fore- 
 ground, since they saw in the state the proximate, and in 
 the individual the ultimate, good.' And yet with neither 
 Plato nor Aristotle would the laws of 'universality' and 
 ' equality' apply to all members of the commonwealth. For 
 with Plato the burdens of the industrial life, and so the 
 burden of supporting the government, would fall upon the 
 working classes, the " husbandmen ; " while with Aristotle 
 the same burdens would fall upon those destined " by 
 nature" to be slaves. 
 
 The Roman idea of the state and government likewise 
 precluded it from forming a basis for principles of taxation. 
 The large dependence of the government upon boot y; and. 
 tr^butefor^its ^U£pojtjJogether w ith the exemp doiLoL-the 
 patrici an — the governing — class^frotn the tax burden^ pre- 
 vented taxat[on from becoming a serious problem whose 
 principles needed investigation and determination. 
 
 Coming down to medieval society and to medieval 
 thought, we find new conceptions of the state and more defi- 
 nite ideas concerning taxation. The system by which indi- 
 viduals gave up their persons and property to lesser lords 
 fdr^grotection, and these, in turn, their persons and property 
 to the h igher nobility, and "the hi gher nobility to roy^alty ; 
 the system of sub-infeudation ; and, indeed, the whole feudal 
 system, inculcated the idea of the dependence of the indi- 
 vidual upon higher political power, and so made protection 
 
 ' However true it may be that the Greek subordinated the individual to, the 
 state, I do not beHeve that any such doctrine can be found, by any consistent in- 
 terpretation, in the philosophy of Plato or Aristotle, as is so often assumed. With 
 both, the State was only a means for the fullest development of the "golden 
 nature " of the individual. 
 
-^^ JUSTICE IN TAXATION [412 
 
 a dominant idea of the social and political structure of 
 society. For this protection personal service was performed. 
 Hence, as the feudal society gradually gave way to the 
 " status of contract," and personal service to taxation, it was 
 only natural that taxation should have been looked upon as 
 a payment for the protection re ceive d from the government. 
 The tax was simply a payment to the government of the 
 costs of its service of protection. It was the ' cojt-of-ser- 
 vice ' theoryLof taxation. This theory, however, soon gave 
 way, at least in part, to the ' value-of-service ' theory — a 
 theory that measures taxation by the value of the service of 
 protection, instead of the cost of that protection. The 
 value of the protection was then conceived to be dependent 
 upon the amount of the property protected, the protection 
 of the person being apparently regarded as a negligible 
 quantity. A tax, therefor e, pro portioned to_one's p rope rty 
 would be pro portio nate to the value of th^service that he 
 had rec^ii^ed. But amount of property protected was 
 very early regarded as the measure of one's economic 
 ability, or ' faculty,'' and so of one's ability to pay taxes. 
 Though 'faculty' might be considered as only another as- 
 pect of the ' value-of-service ' principle, the {diCn\\.y—facultas 
 — of the individual to pay taxes was early laid down as a 
 distinct measure, or canon, of taxation. = It was largely out 
 of these conditions that grew the conception of the ' social 
 contract ' and the theory of taxation that evolved from it. 
 
 I. The Social Contract and Taxation 
 
 At the same time that historical conditions were lending 
 much force to the conception of society as founded upon a 
 contract, there was gradually developing out of the old Stoic 
 conception of a " law of nature," though with considerable 
 
 ' Cicero somewhere identifies faculty with property. 
 * Cf. Seligman, Progressive Taxation, p. 127. 
 
413] POLITICAL BASIS AND PRINCIPLES 77 
 
 transformation of ideas, a theory of a " social compact " as 
 a complete explanation of the origin and nature of the state. 
 Although this theory is now universally repudiated by econ- 
 omists and political scientists, no theory of the state has 
 exerted a wider or deeper influence, theoretical and practi- 
 cal, in the fields of politics, economics and finance, partic- 
 ularly in England, France and the United States. The 
 contract theory had, for example, a great influence upon 
 JefTerson and the founders of our Republic, and has also 
 given color to much subsequent legislation,' while its as- 
 sumptions are to-day among the most commonly accepted 
 doctrines of lawyers, statesmen, and the general public, 
 especially in matters of taxation.^ 
 
 I. The Political Philosophers. The theory of the Social 
 Contract has received its fullest development in the writings 
 of Hobbes,3 Locke,* and Rousseau, ^ although the doctrine 
 is older than the Leviathan.^ The theory is so generally 
 understood that it is not necessary to enter into a detailed 
 account of it. In brief it is this : Prior to the existence of 
 civic society mankind lived in a " state of nature," accord- 
 ing to Hobbes in an un-social, even anti-social, " state of 
 war," but with Locke and Rousseau under more or less 
 social conditions. In the course of time the individuals 
 composing the non-civic society became, as it were, sud- 
 denly conscious of the fact that their happiness and well- 
 being would be furthered if they would organize themselves 
 into a body politic and choose a common arbiter, or arbiters, 
 
 ' Cf. for example, speech of Da\Wi, Annals of Congress, i4thC., istSes., p. 1681. 
 
 * Cf. Cooley, Law of Taxation. Also second message of Gov. Black of New 
 York (1896), and newspapers at the time of the Income Tax decisions in 1893. 
 
 * Leviathan, De Ccrpore Politico and Philosophical Rudiments. 
 
 * Civil Government. 
 
 * Social Contract. 
 
 •See Grotius, De Jure Belli et Pads. Also, Sidgwick, History of Ethics, pp. 
 157-160. 
 
78 JUSTICE IN TAXATION [414 
 
 for settling all such disputes as are constantly arising in a 
 state of nature, and for common defense against all attacks 
 upon life and property; thus converting the ' natural right' 
 of the self-defense of one's person and property into the 
 right of a legal protection guaranteed by the people as an 
 organized whole. 
 
 As the theory is developed in detail there are considerable 
 differences among the writers mentioned, though for our pur- 
 pose most of them are unessential. We may mention, how- 
 ever, that with Hobbes the purpose of the compact was to 
 avoid a state of "waiijof all against a41 " that prevails in the 
 state of nature ; that with Locke it was to avoid the " incQUr 
 venjejices" that naturally arise in settling any disputes where 
 there is not a common arbiter to decide differences; while 
 with Rousseau the compact was rather a convenient hypoth- 
 esis for picturing the conditions of an ideal society. Rous- 
 seau, indeed, had little concern for the past, but believing 
 man to be born free but everywhere in chains,' he sought, like 
 Plato, to discover the nature of the ideal state where liberty 
 and justice might be realized.^ And the basis of such a 
 state he found in the idea of a 'contract.' There is also a 
 difference with respect to the location of sovereignty, and to 
 the character of the protection. H obbes emp has i ze d the 
 protection of life, Lo cke the protection of pxaperty, and 
 Rousseau the liberty that is conditioned by the protection 
 of both. But the more important fact is, that with all alike 
 the idea of a contract best expresses the nature of the state ; 
 that, further, the state originated in the necessity of protec- 
 tion, or, at least, has as its function the protection of the 
 lives and property of its citizens. 
 
 It is unnecessary to enter into a criticism of a theory now 
 so universally repudiated by philosophers and political sci- 
 entists, although the fiction is still kept up in much legal 
 
 ' Cf. Social Contract, ch. I. ^ Ibid., Introduction. 
 
415] POLITICAL BASIS AND PRINCIPLES 79 
 
 writing. We would simply refer to the facts : That it rests 
 upon no historical foundation; that it falsely assumes the 
 relation of the individual to the state to be of the nature of 
 a contract ; that it makes mechanical and statical what is 
 spiritual and dynamic, formal what is vital, external what is 
 internal. On the other hand, the criticism of Professor 
 Burgess, that the theory assumes a logical contradiction, 
 since the state must exist before there, could be a contrai;.t,' 
 seems to us little more than a technical point of law, as by 
 the 'contract' was evidently meant nothing more than a 
 covenant, similar to that of the Scottish Covenanters, or of 
 the Pilgrims in the Mayflower. 
 
 Assuming, then, the theory as understood by its promul- 
 gators, what is the theory of taxation based upon it? If its 
 theory of taxation depended upon its theory of a contract 
 we might dismiss it with the statement: That since no such 
 contract ever existed, nor, in fact, expresses the true relation 
 of the individual to the state, it can not form the basis of the 
 rights and obligations of citizens in matters of taxation. But 
 as a matter of fact the idea of a contract forms no part of 
 the theory of taxation of the Contract theorists. With them 
 the basis of both — of the state and of taxation — was found 
 in the idea of protection. For this reason their theory of - 
 taxation, most fully developed by Hobbes, deserves more 
 careful consideration, since protection is unquestionably an \ 
 important factor both in the conception of the state and in \ 
 that of taxation. 
 
 That the basis of taxation is found in the protection that 
 the citizen receives from the state is most clearly brought 
 out by Hobbes. Taxes, he says, " are nothing else but the 
 wages due to them who hold the sword to defend private_ | 
 men .Lg, tjie^exe rcise of their several t rades and ca llings^"/ 
 Moreover, since the benefit that every one receives from this 
 
 1 Burgess, Op. cil.. Vol. I, p. 62. 
 
8o JUSTICE IN TAXATION [416 
 
 protection " is the enjoyment of life, which is equally dear 
 to poor and rich, the debt which a poor man oweth them 
 that defend his life, is the same which a rich man oweth 
 for the defense of his."' But this equality of taxation does 
 not mean, however, an absolute equality, for the benefit of 
 the protection is the "enjoyment of life" as measured by 
 material consumption ; and hence taxes should be based 
 upon what one " spendeth," or consumes, by which *' every 
 man payeth equally for what he useth."' Similarly in the 
 Politics : " The burdens of the commonwealth being the 
 price that we pay for the benefits thereof, they ought to be 
 measured thereby." And since this benefit is the equal 
 enjoyment of the peace and liberty to use our industry to 
 get our living, we should contribute equally to the common 
 charge, not as measured by the results of our industry, but 
 by our consumption. " That seemeth therefore to be the 
 most equal way of dividing the burden of public charge, 
 when every man shall contribute according to what he 
 spendeth, and not according to what he gets." 3 Again in 
 the Philosophical Rudiments it is declared, that taxes being 
 " noth ing else^ut the price of bought_peac£,_it is good rea- 
 son that they who equally shai:e_ln__the__p£ace, shjo uld als o^ 
 pay in equal j)art." ♦ 
 
 In brief, the position of Hobbes is this : The purpose of 
 the state is the protection of the life of the individual that 
 he may enjoy the peaceful pursuit of a living, and the indi- 
 vidual should pay for the expense of this protection ; the 
 tax, which is the price of this 'bought peace,' should there- 
 fore be based upon the benefits derived from this protection ; 
 » and since the value of this benefit is determined by the 
 
 ^Leviathan, Part II, Ch. 30, p. 30. (All references to Hobbes are from 
 Moleswortb's edition.) 
 
 ' Ibid. ' De Corpore Politico, Part II, pp. 216-7. 
 
 * PhiUiophical Rudiments, p. 1 73. 
 
417] POLITICAL BASIS AND PRINCIPLES 8 1 
 
 amount of the enjoyment, which is itself measured by the 
 amount that one enjoys in the way of consumption under 
 the protection of the state, the tax should be based upon 
 the consumption of the individual; and since all equally 
 enjoy the benefits of protection, as thus measured by con- 
 sumption, all should bear equally the burden of taxation 
 according to their enjoyment of consumptive goods, that is, 
 in proportion to their consumption^ And that this principle 
 should govern the distribution ~6i taxes is in accordance 
 with the 'natural law.' "Rulers," says Hobbes, "are hy_ 
 thejnatural_law_obHged_toJay the burden of the comnion- 
 wealth equally on thejr subjects. Now in this place we 
 understand an equality, not of money, but of burden, that 
 is to say, an equality of reason [proportion] between the 
 burdens and the benefits. For although all equally enjoy 
 peace, yet the benefits springing from thence are not equal 
 to all,"' because of differences in consumption, which is the 
 true measure of benefits. That is, the cost of protection 
 should be distributed among those receiving the protection 
 in proportion to its value to them, or in proportion to the 
 value of the benefits of protection, which is the quantity of 
 consumption. 
 
 Are these conclusions of Hobbes a logical consequence of 
 his fundamental premise, or the logical outcome of his con- 
 ception of the state? Or, again, does the theory of Hobbes j 
 give us a satisfactory principle of taxation, grounded upon \ 
 a sufficient and satisfactory basis? Both questions, we be- ! 
 lieve, must be answered in the negative. Forj with regpect, 
 to the first^ if protection is the sole.pjjrpose for which polit- 
 ical^ s.ocjety exists, Jthen the cost of that protection is the 
 logical basis ^oi taxation, but such a basis of tax distribution 
 is a practically impossible basis. Or, if the tax be consid- 
 ered to be paid for the benefits of the protection, not for the 
 
 ' Philosophical Rudiments, p. 1 79. 
 
82 JUSTICE IN TAXATION [418 
 
 protection itself, then the value of those benefits would seem 
 to be the true basis for the distribution of the tax burden. 
 But, again, this is an impossible basis, for the value of these 
 benefits is an incalculable quantity, since the protection upon 
 which they rest is the foundation of our whole civilization 
 and of all the benefits derived therefrom. But since a tax 
 can not equal the benefits let us concede that it should 
 be in proportion to benefits ; that is, the share of each should 
 be such a proportion of the total expense, as the benefits 
 that he derives from the protection are to the total benefits. 
 But this, again, is not a calculable quantity. Hobbes, how- 
 ever, gets around the difficulty by first assuming that the 
 benefits consist in the peaceful pursuit of " our trades and 
 callings," and then illogically concluding that the benefits 
 are measured by what we consume rather than by what we 
 produce. In brief there is no logical connection between 
 Hobbes' theory of protection and his theory of consumption 
 as the basis of taxation. Nor is Hobbes more satisfactory 
 in his assumption of benefits as the true principle of taxa- 
 tion. Even if we concede that, in a sense, the theory of 
 benefits is a logical deduction from the theory of protection 
 we maintain, and shall presently show, that the theory of 
 protection is wholly inadequate, as it expresses at best only 
 a half truth. On the other hand the theory of benefits as 
 understood by Hobbes is equally inadequate, since it ex- 
 presses even less than a half truth. It is a grossly inade- 
 quate conception of the state that conceives its benefits to 
 be limited to the power of peaceful industry, or to the per- 
 sonal consumption of economic goods. The benefits of 
 government are manifold and are not to be limited to the 
 enjoyments derived from the consumption of material goods. 
 And the tax must include the whole range of enjoyments. 
 Further, the theory of benefits is a false and impossible 
 principle for taxation; false, because it assumes an erroneous 
 
419] POLITICAL BASIS AND PRINCIPLES 83 
 
 conception of the relation to the state as the basis of taxa- 
 tion ; impossible, because the benefits that are supposed to 
 form the basis of the distribution of taxes are in'no way> 
 calculable quantity. 
 
 Not only, therefore, does Hobbes commit the double error 
 of assuming benefits as the true measure of taxation, and 
 that these benefits are proportioned to our consumption of 
 economic goods, but his theory altogether ignores the moral 
 element that is involved in the relations of individuals to 
 each other in society or the state, and hence he expressly 
 repudiates the principle that proportions taxation to ability.' 
 Hobbes finds the justice of his principle solely in the assump- 
 tion that our benefits are proportioned to our individual 
 economic consumption. And he finds corroboration for 
 his principle in that it conforms to the most expedient. 
 A tax proportioned to consumption, he says, " seemeth not 
 only most equal, but also least sensible, and least to trouble 
 the mind of them that bear it." ^ 
 
 Turning from Hobbes to Locke and Rousseau, we find 
 that they gave little attention to the problem of taxation. 
 Yet Locke expressly bases taxation upon protection and 
 intimates that it should be proportioned to its cost, though 
 it must be admitted that his statement on the latter point is 
 not very clear. " 'Tis true," he says, " government cannot 
 be supported without great charge, and it is fit every one 
 who enjoys a share of protection should pay out of his estate < 
 his proportion for the maintenance of it." ^ This is practi- ' 
 cally all that Locke has to say on the subject, so that we are 
 left in doubt how the proportionate share of each in the tax 
 burden is to be determined. But it suffices for our present 
 purpose that the principle of taxation is based upon pro- 
 tection, each sharing his proportion of the cost. 
 
 It is interesting to note, however, that Locke emphasizes 
 
 * Cf. De Cor pore Politico, p. 216. ' Ibid., p. 217. 
 
 * Civil Government, sec. 140. 
 
84 JUSTICE IN TAXATION [420 
 
 the importance of free consent in the payment of taxes, i. e., 
 consent of the majority — since arbitrary taxation " invades 
 the fundamental law of property, and subverts the end of 
 government." This is not only an emphasis upon the moral 
 obligation to pay our share of the cost of our protection, 
 but it follows from Locke's theory of civil government and 
 from his theory of property.' Yet Locke, himself, makes 
 this moral obligation stand for naught by his theory that 
 the ultimate incidence of all taxes is, by the inevitable 
 workings of economic laws, upon land ; since the merchant 
 will not and the laborer cannot pay the taxes. " It is in 
 vain," says Locke, " in a country whose great fund is land, 
 to hope to lay the pubUc charge of the government on any- 
 thing else ; there at last it will terminate. The merchant 
 (do what you can) will not bear it, the laborer cannot, and 
 therefore the landlord must."' The merchant "will not," 
 because he can shift it by raising the price ; the laborer 
 " cannot," " for he just lives from hand to mouth. "3 Thus, 
 the position of Locke amounts to this : We are all in duty 
 bound to pay our share of the cost of the protection of gov- 
 ernment, yet the large merchant class will not, since economic 
 laws enable them to shift the burden, and the large laboring 
 class cannot, because they are already at the minimum of 
 subsistence. That is, economic laws and conditions stand 
 in opposition to the moral law, thus compelling one class in 
 society — the landlords — to bear the burdens of the rest. 
 The theory as a whole, then, is inconsistent with itself, but 
 the fault here is with the theory of incidence rather than 
 with the theory of protection. 
 
 Finally, in the case of Rousseau, we find no attempt to 
 develop a theory of taxation based upon his theory of a 
 
 * Civil Government, ch. 5. 
 
 * Interest, p. 60 (Works, Vol. IV, Edition 1824). Cf. also p. 57. 
 ■ Ibid., p. 57. 
 
42 I ] POLITICAL BASIS AND PRINCIPLES 85 
 
 social contract. Yet out of Rousseau's theory of * liberty 
 and equality,' which he made the mainspring of the contract, 
 theories of society and taxation were developed, mainly by 
 the French communists at the end of the eighteenth century, 
 such as Baboeuf and Morelly. But as these theories were 
 communistic in character we shall postpone their considera- 
 tion until we take up the question of Social Theories and 
 Taxation. 
 
 2. The Protection Theory of Taxation. Our preceding dis- 
 cussion has shown that the contract theorists based their 
 principles of taxation solely upon the idea of protection. 
 This doctrine we have also found to be contained in much 
 legal thinking, as in the popular mind, and it is also found 
 in a certain school of economists. Because, then, of its his- 
 torical and practical importance it may be well to examine 
 separately, though briefly, both the merits and the demerits 
 of the doctrine, its truths and its limitations. 
 
 In discussing the protection theory of taxation we should 
 carefully distinguish it from the similar economic theory, 
 better known as the give-and-take, or the quid pro quo, 
 theory of taxation. The latter will come up for discussion 
 in the following chapter. Here we are concerned only with 
 the protection theory as forming the political foundation of 
 taxation and of its principles. True, the kindred economic 
 theory rests upon the assumption that protection constitutes 
 the true political basis of taxation, but it views the relation- 
 ship that necessitates taxation more from the economic 
 point of view and deduces its principles wholly from eco- 
 nomic considerations, or from economic laws. But although 
 there is a clear theoretical distinction, it would be difficult to 
 find any treatment of the subject wholly free from the one 
 or the other point of view. Nevertheless we shall view them 
 separately, though recognizing their practical inseparability. 
 
 From the purely political point of view, then, I would 
 
86 JUSTICE IN TAXATION [422 
 
 adduce as the most important criticisms of the protection 
 theory: That its fundamental conception is inadequate; 
 that the principles deduced are not consistent with its logical 
 deductions ; that it sees no ethical consideration beyond the 
 obligation of each to pay his share for the protection that 
 he receives. 
 
 I. We have already pointed out the fact that this theory 
 is based upon an inadquate conception of the state, and 
 from our point of view this statement finds sufficient proof 
 in the theory of the state outlined in chapter II. If we are 
 right in our conception of the state the protection theory is 
 necessarily inadequate. It expresses, in fact, but a half- 
 truth. For while the protection of persons and property is 
 the fundamental basis of social order and social progress, 
 the purpose of the state and the functions of government 
 are altogether too large to be comprehended under the con- 
 ception of protection. The true conception includes pro- 
 tection and admits that it is fundamental, but it does not 
 recognize protection as exhausting all that the state stands 
 for. The state not only represents the highest culmination 
 in the development of the social life of a people, but it is at 
 the same time the conditioning instrument in the totality of 
 their development, or in the development of the individual. 
 To this end the protection of persons and property is a 
 necessary incident but it is only one among many incidents, 
 though we will grant that it is the most fundamental and 
 most important. Hence the aim of taxation cannot be lim- 
 ited to the one end of protection. Its range is necessarily 
 as comprehensive as the functions of government acting as 
 the agent of the state in the fulfilment of its purpose. This 
 is practically conceded by defenders of the protection theory 
 who, like Von Hock, make protection co-extensive with 
 national well-being,^ or who, with Sismondi, make it include 
 
 ' Von Hock, Die 'dffentlichen Abgaben und Schulden, §§ 1-4. 
 
423] POLITICAL BASIS AND PRINCIPLES 8/ 
 
 all of the advantages that are derived from it, as roads, 
 honor, justice, education, religion, etc' But if protection 
 forms too narrow a conception for the political basis of taxa- 
 tion, the principles deducible from this conception must like- 
 wise be insufhcient, as we shall endeavor to show. 
 
 2, That the principles deducible from such a basis are 
 insufficient is shown, among other reasons, in the fact that 
 those who proceed upon its assumption are unable to carry 
 the doctrine to its logical conclusions. For, logically, the 
 theory involves the cost-of-service principle of taxation — 
 the apportionment of taxes to the cost of the protection, 
 whether of persons or of property. This position, however, 
 is seldom maintained, it being usual to adopt in its place the 
 principle that bases the tax upon the advantages, or the 
 benefits, derived from the protection. But even if we assume 
 that this principle is a logical consequence of its leading 
 premise, as in a limited sense it, perhaps, is, it does not, any 
 more than the cost theory, afTord a working principle for 
 rules of taxation; for both individual costs and individual 
 benefits are incalculable quantities. But this apart, accord- 
 ing to the benefit principle the tax should be proportioned 
 to the benefits received. But this is impracticable. For 
 on the one hand the tax should equal the costs (else the 
 protection must cease), whether or not the costs exceed the 
 benefits; while on the other hand the tax for the most part 
 cannot equal the benefits, otherwise the revenue would enor- 
 mously exceed legitimate expenditure. Thus, neither the 
 principle of individual costs, nor that of individual benefits, 
 the only logical principles deducible from a purely protec- 
 tion basis, are practically possible principles of taxation, 
 since they have only a hypothetical existence. 
 
 Nor do we wholly escape the difficulty by harmonizing 
 the two principles, as is universally done, on the basis of the 
 
 ' Sismondi, &conomie Politique, Vol. II, p. 165 (Ed. 1827). 
 
88 JUSTICE IN TAXATION [424 
 
 totality of costs and the totality of benefits, assuming as the 
 principle of taxation that the taxes of each should be such 
 a proportion of the total costs as he shares of the total ben- 
 efits. It is true that the total taxes must equal the total 
 expenses of the government, but the protection basis of tax- 
 ation does not afford in itself any ground for distributing 
 the costs according to the benefits received, except upon the 
 gratuitous assumption that the costs and benefits are in every 
 case directly proportioned to each other. But even if this 
 were true in theory no definite result would follow, since a 
 proportion could not be established between two unknown 
 quantities. 
 
 The fact is that upon the political basis of protection the 
 ■distribution of the costs of protection according to the theory 
 of benefits can have validity only upon the assumptions : ( i ) 
 that the idea of protection is confined strictly to the pro- 
 tection of the person and of property; (2) that the value of 
 the protection of the person is precisely the same for every 
 individual; ' (3) that the value of the protection of property 
 bears a direct, ascertainable ratio to the amount of property 
 protected,^ a ratio that is most commonly assumed to be 
 directly proportional. But this limitation of the function of 
 government we have already seen to be too narrow even for 
 the defenders of the protection theory. They assume that 
 protection covers all of the advantages derived from the 
 protection, and at the same time assume that these advan- 
 tages have a definite money value that is proportioned to 
 the amount of property of the individual. But these are 
 assumptions only ; they are not logic. 
 
 The failure of this school to arrive at logically deduced 
 principles is emphasized still more in the fact that, not con- 
 
 ^ C/. Von Hock, op. cit., same reference. 
 
 * Examples are too numerous to mention. It is the almost universally accepted 
 doctrine of those influenced by the conception of the state in question in the text. 
 
42 5] POLITICAL BASIS AND PRINCIPLES 89 
 
 tent with the theory of costs or of benefits, they make ability 
 also the true norm of taxation, apparently regarding it as 
 deducible from the theory of protection and in harmony 
 with the theory of benefits, if not, indeed, synonymous with 
 the latter.^ But, as will be shown later, ability is a principle 
 quite distinct from that of benefits, and has a foundation 
 quite distinct from that of the protection theory of the state. 
 The ability principle implies an ethical basis that is not to 
 be found in the protection theory, or the theory of benefits. 
 And in fact the inconsequences in the conclusions of this 
 school arise very largely from the assumption of principles, 
 in the development of their theory, that are not involved in 
 their fundamental premise — their theory of the state. 
 
 3. Not least important among these assumptions is the 
 assumption of ethical relations that are not involved in the 
 theory of the state upon which their principles are based. 
 For if protection is the sole basis of the state, originating in 
 an actual or implied contract to that end, the tax, as we 
 have seen, must bear a definite relation to the cost, or at 
 best to the benefits, of that protection. There can be no 
 escape from the tax for the protection of the person, and no 
 escape for the protection of property, by those who may 
 possess even the smallest amount of it. Moreover, this 
 theory of the state does not in itself involve principles from 
 which exceptions may be logically derived. Hence the only 
 ground for any exception to the above rule for taxation is 
 that of absolute necessity. Many writers, indeed I think I 
 may say most writers, consistently maintain this position, 
 though some would justify exemptions on the principle of 
 ability, which involves ethical considerations. 
 
 Now it is my contention that any theory of the state is 
 essentially defective from which practicable principles of 
 
 ' C/. (or example Adam Smith's famous first canon of taxation, since widely ac- 
 cepted without qualification. 
 
90 JUSTICE IN TAXATION [42^ 
 
 taxation cannot be logically derived, since a state implies as 
 well as necessitates taxation. But such a theory the con- 
 tract, or its counterpart the protection, theory does not 
 afford. And this mainly because the ethical character of 
 the state is ignored. The state is conceived of as static and 
 as consisting of external, mechanical relations ; whereas it is 
 dynamic and its relations are essentially internal, psychical. 
 This means also that the relations are ethical, and that 
 ethical precepts are involved in the rules that determine the 
 manner of the state's support. It means further, that the 
 ethical precepts should dominate more and more in the 
 practical rules of taxation the more a people develops its 
 ethical consciousness ; that principles and rules of taxation 
 should not be derived from primitive conditions of society, 
 but from the conditions prevailing in a society in the process 
 of developing its internal relations, and with reference to its 
 ultimate end. We may, indeed, seek to discover principles 
 that controlled actions in the past, but in searching for prin- 
 ciples for taxation we are searching for principles that should 
 control the action of the future. Such principles are not 
 mere records of past or actual experiences, but are the 
 formulation of ideal norms for the guidance of conduct^, 
 determined by the inner nature of society and the state. 
 
 II. The Evolution Theory of the State and 
 
 Taxation. 
 
 The preceding discussion has shown us, at least by im- 
 plication, that principles of taxation are not to be derived 
 from specific functions of government, or from the historical 
 origin of the state, but are to be derived from the nature and 
 end of the state, which involves the nature and end of the 
 individuals by whom the state is composed. Functions of 
 government determine limits of taxation, and the actual 
 origin of a state influences the character of its system of 
 
42/] POLITICAL BASIS AND PRINCIPLES 91. 
 
 taxation, but in neither case do they afford a basis for the 
 determination of ethical principles for the distribution of the 
 tax burden. Important as these truths are, they are fre- 
 quently ignored, not only by the school of writers just con- 
 sidered, but among others, in part at least, by Mr. Spencer 
 in the development of principles of taxation based upon his 
 evolution theory of the state. 
 
 Turning, then, to the evolution theory of the state (and we 
 shall confine ourselves to the theory of Herbert Spencer), 
 we shall not find it necessary to trace the evolution of the 
 modern state from the primitive horde and tribe, for the 
 course of this development has nothing to do with Mr. 
 Spencer's theory of taxation. Besides, in this respect the 
 theory does not differ essentially from the historical theory 
 of the state, except that the evolution theory assumes to 
 discover the underlying principle that guides the course of 
 the development. It is' the principle that controls develop- 
 ment that is the important thing in Mr. Spencer's theory of 
 evolution, and the principle that controls social evolution is 
 found to be precisely the same as that which determines all 
 evolution in the plant and animal worlds — a principle that 
 may be summarized as the survival of the fittest struggling 
 in the direction of the least resistance, or, by co-operating 
 forces, overcoming resistance. Hence the evolution of the 
 social world, like that of all life, is mechanical, external ; the 
 moving power as the determinant of the "fittest" being 
 ultimately Force — the force to resist or to subdue, the force 
 to destroy or to utilize. 
 
 It is by the power of augmenting such forces through co- 
 operation, that political society is made possible, and it is 
 those peoples that possess this power in the greatest degree 
 that are the fittest to survive and to develop. This suggests 
 that social organization has not for its sole purpose mere 
 survival, but has a larger, ultimate purpose in development 
 
92 JUSTICE IN TAXATION 428 
 
 — the development of social organization and through it the 
 development of the fullest life of the individual; for the 
 development of the highest possibilities of life is the ultimate 
 aim of all evolution. Now the all-essential to the highest 
 development of the possibilities of individual life, that is, to 
 the development of human nature, is the largest possible 
 freedom of the individual in the exercise of his own powers 
 as directed by his own nature, and so receiving "the good 
 and evil results of his own nature and consequent results."' 
 But if this rule were without restraint in its application there 
 would be only individual conflicts without individual develop- 
 ment. It needs, therefore, limitation, so that with the free- 
 dom of the individual to develop himself, there must be 
 recognized the like freedom of others. That is, " in the 
 social state the conduct of each bringing to him these results 
 must be restrained within the limits imposed by the presence 
 of others similarly carrying on action and experiencing re- 
 sults."'' Thus is developed the fullest life compatible with 
 equal freedom, "the ultimate end being a higher develop- 
 ment of human nature. "3 In short, while there should be full 
 freedom and liberty for the individual in the exercise of his 
 powers, since his development depends upon himself, it is 
 true that his personal interests, when unrestrained, tend to 
 come into conflict with the like interests of his fellows, who 
 should possess the same freedom of development as himself. 
 And since this conflict of interests will not cease until altru- 
 ism dominates the world,'' such freedom and liberty of each 
 must be guaranteed by a supreme power — that is, by the 
 state. The sanction for this interference in the conduct of 
 the individual would seem to lie in the power of force — co- 
 operative force — and the fact that those peoples that enforce 
 such restraint prove themselves the fittest to survive and to 
 develop. 
 
 ' Spencer, yusiice, p. 221. * Ibid. * Ibid., p. 226. 
 
 • See Spencer, Data of Ethics, chs 11-13. 
 
429] POLITICAL BASIS AND PRINCIPLES 93 
 
 From this point of view of the state, and from what we 
 may call its immediate and efficient cause, its chief purpose 
 would seem to be to act as a protective agency, and hence 
 it is that Mr, Spencer conceives of the state as a kind of a 
 "joint-stock protection-society," ' whose function is to guar- 
 antee to each the fullest freedom for the exercise of his facul- ^ 
 ties compatible with the equal freedom of all others."^ But 
 Mr. Spencer rightly regards protection as only a primary, 
 immediate function of government — a means to an end. 
 This end, as variously stated, is to "administer justice," "to 
 maintain the conditions under which each may gain the 
 fullest life compatible with the fullest lives of fellow-citi- 
 zens. "3 Or, it is "to maintain the conditions under which 
 individual life and its activities may be carried on,"* though 
 ultimately it is " the formation of character."^ 
 
 But notwithstanding this recognition of ultimate ends, it is 
 the immediate function of government that is the important 
 thing in Mr. Spencer's philosophy of the state. Indeed, 
 when a government assumes to do more than protect the 
 individual in the exercise of his faculties, that is, when it i 
 assumes to participate positively in the development of { 
 human nature, or of human capacities and characters, it 
 defeats itself and retards rather than aids the development 
 of the ' fullest life.'^ And this conclusion obtains from what- 
 ever point of view we regard the state — from its immediate , 
 or its ultimate end. The state (or with Mr. Spencer indiffer- 
 ently, the government) must act simply as a restraining 
 power, though the boundary line of this restraint is admit- 
 tedly a difficult problem to determine. ^ 
 
 From such a theory of the state, what principles of taxa- 
 
 ' Spencer, Social Sialics (Abridg. Ed.), p. 122. * Hid., p. 123. 
 
 • Spencer, Justice, pp. 213-4. * Jbid., p. 194. • Ibid., p. 251. 
 
 • Cf. Social Statici, p. 127. Also Cb. 26, especially 372. 
 
 • Ibid., p. 127 et seq. 
 
g^ JUSTICE IN TAXATION [430 
 
 \tion follow, according to the views of Mr. Spencer? In the 
 
 ifirst place, it is to be observed that since the government 
 
 .■must guarantee equal freedom of development, or negatively, 
 
 fequal conditions " under which individual life and its activi- 
 
 • ties may be carried on," it is bound not only to respect a 
 
 '; principle of equality in the distribution of the tax, but to 
 
 exact only the minimum necessary for its support; since to 
 
 do otherwise would be to deprive us of our liberties, or of 
 
 the freedom to exercise our faculties." ' Indeed, any tax is 
 
 regarded as a curtailment of our liberty, yet necessary to the 
 
 enjoyment of larger liberties, and so a necessary evil. Or, it 
 
 is a necessary " sacrifice of a part to ensure the remainder of 
 
 our property." ' 
 
 But upon what principle is this equality to be realized and 
 taxation confined to its proper limits? Upon Mr. Spencer's 
 theory of a " joint-stock protection-society," the true meas- 
 ure of taxation would seem to be the principle that controls 
 an insurance premium, as the state exists to guarantee our 
 lives and property against the attacks of others, and also 
 their free exercise and use. But with Mr. Spencer the limit 
 of taxation is found in the actual costs necessary to guarantee 
 the desired protection, while the principle of distribution is 
 that of " benefits " derived from the protection. 
 
 " In the abstract," says Spencer, " the question does not 
 appear to present any great difficulty. The amounts'individu- 
 ally paid should be proportioned to the benefits individually 
 received. So far as these are alike the burdens should be 
 alike ; and so far as they are unlike the burdens should be 
 unlike. Hence arises a distinction between the public expen- 
 diture for the protection of persons and the public expendi- 
 ture for the protection of property. As life and personal safety 
 are, speaking generally, held equally valuable by all men, 
 
 • Spencer, Social Siatics, p. 123. 
 
 * yustice, 209. Cf. also Montesquieu, De /' esprit des his, bk. xiii, ch. I. 
 
43 1 ] POLITICAL BASIS AND PRINCIPLES 95 
 
 the implication appears to be that such public expenditure 
 as is entailed on their account should fall equally upon all. 
 On the other hand, as the amounts of property possessed at 
 the one extreme by the wage worker, and at the other 
 extreme by the millionaire, differ immensely, the implication 
 is that the amounts contributed to the costs of maintaining 
 property rights should vary immensely — should be propor- 
 tionate to the amount of property owned, and vary to some 
 extent according to its kind.' 
 
 Not only should taxes be proportioned to benefits, but 
 " state burdens, however proportioned among citizens, 
 should be borne by all. Every one who receives the bene- 
 fits which government gives, should pay some share of the 
 costs of government, and should directly and not indirectly 
 pay it." ' 
 
 In the above quotations, we have substantially all that Mr. 
 Spencer has to say respecting principles of taxation, although 
 the same ideas are several times repeated in his different 
 works. And the sum and substance of the principles that 
 Mr. Spencer finds deducible from his theory of the state are, 
 that the tax should be proportioned to benefits, and should 
 be universal. But since Spencer, with Von Hock, distin- 
 guishes between the protection of the person and of prop- 
 erty, and consistently so, there must be one universality for 
 persons and another for property 
 
 We cannot stop here to enter into a criticism of Mr. Spen- 
 cer's theory of the state which he assumes as the basis of his 
 principles of taxation. For us the question is : Are these 
 principles logically deduced, and are they consistent with the 
 demands of justice? Or we may ask: Is this theory of the 
 state itself capable of supplying principles that satisfy the 
 highest demand of justice? 
 
 I. Mr. Spencer deduced his principles from his theory of 
 
 ' yustict, pp. 198-9. » Ibid., p. 194. 
 
96 JUSTICE IN TAXATION [432 
 
 government as a " a joint-stock and protection-society" — 
 from his theory of the functions of government; not from his 
 his theory of the evolution of the state — not from the nature of 
 the state itself. And assuming the same functions, he arrives 
 at the same conclusions as those who hold to the contract 
 theory, or to the protection theory of the state — the theory 
 of benefits and universality. But we maintain that neither 
 his theory of the functions of government, nor his princi- 
 ples of taxation, are necessary deductions from the evolu- 
 tion theory of the state. For if society is a " growth " 
 and not a " manufacture," ' the same must be true of the 
 state, for Mr. Spencer does not distinguish between the state 
 and its government, and thus to assume that the state goes 
 on developing while its functions remain constant, is to con- 
 tradict himself, and to assume for the state dynamic, and for 
 the government static conditions. It means, further, that 
 while evolution is recognized as the all-controlling social 
 force, yet arbitrary limits may be assigned to it ; that after 
 all, it is the preconceived notion of what ought to be, and 
 not the actual trend of evolution, that has formed the basis 
 of conclusions. It is true that Mr. Spencer's individualism 
 has given color to this theory of governmental functions, but 
 it is not consistent with his theory of the ultimate end of the 
 state to assign arbitrary limits to the functions of its govern- 
 ment, the agency through which it must realize its end. 
 
 The same criticism may be applied to the principles of 
 taxation. For if there is any truth in this theory of evolu- 
 tion, the principles of taxation must vary from time to time 
 with the progress in social evolution, conforming to existing 
 ideals and standards of society. Again, if we recall that all 
 evolution, according to Mr. Spencer, is a product of exter- 
 nal, material forces and laws, the non sequitur of his conclu- 
 sions becomes even more apparent. Whether, on the theory 
 
 * Cf, Justice, p. 247. 
 
433] POLITICAL BASIS AND PRINCIPLES 97 
 
 of evolution, a tax should conform to benefits and be univer- 
 sal, must depend upon whether the evolution of the state is 
 best promoted by an application of these principles. Nor 
 does the theory of evolution, in itself, afford any a priori 
 reasons in support of these principles. 
 
 For a criticism of these principles as deductions from Mr. 
 Spencer's theory of the functions of government we may 
 refer to the preceding discussion.' But to this we may also 
 add, that however true it may be that the protection of life has 
 an equal value for all, it is by no means self-evident that the 
 benefits derived from the protection of property are propor- 
 tional to the amount of property protected. Indeed, the 
 opposite conclusion has more reason. Still more, the pro- 
 tection of property affords benefits to the propertyless as 
 well as to the property holders, though in a less degree. 
 
 2. As to the ethical character of the principles, we may 
 refer again to the preceding discussion,^ where it is shown 
 that while the principle of universality is true as a general 
 principle it nevertheless requires exceptions ; and that the 
 principle of benefits is lacking in important ethical consider-^ 
 ations. But more than this, we maintain that Mr. Spencer's 
 theory of social evolution does not afford a sufficient basis 
 for ethical principles of taxation. The conception of a state 
 as composed of individuals who are little more than abstrac- 
 tions of the individual as he is in actual life, and of relations 
 that are little more than artificial and mechanical, are not 
 conceptions to give a basis for ethical principles. No theory, 
 indeed, can meet the requirements of ethical demands that 
 does not conceive of the individual as a self-realizing spiritual 
 entity — a person; as also having a social nature which is 
 such a vital part of himself that apart from it he has no real- 
 ity as a person. For only with such a conception can the 
 relations of individuals to each other in society be rightly 
 
 ' See ante, p. 73 et seq. * Ante, p. 75 et seq. 
 
gS JUSTICE IN TAXATION [434 
 
 understood, or ethical principles deduced. Material agencies 
 may issue in conduct, but not in moral conduct. In brief, 
 a philosophy of taxation, like a philosophy of the state, 
 must, as we have before observed, take into consideration the 
 whole man. 
 
 But such is not the case with the theory of evolution in 
 question. Principles of taxation that follow from it must 
 result from the law of the " survival of the fittest," must be 
 such as are best adapted to the conditions of social life, and to 
 the economic conditions, as they at any time exist. It is true 
 that such a result may be contained in the principle of uni- 
 versality ; but it is equally true that those conditions might 
 be met only by a modification of the law of universality — by 
 means of exceptions; while under Mr. Spencer's assump- 
 tion the law of universality admits of no exceptions. The 
 benefit principle, however, cannot conform to such condi- 
 tions, since it is not capable of practical realization, as there 
 is no justification for the assumption that benefits are propor- 
 tioned to the amount of property. 
 
 Finally, it may be added that Mr. Spencer's theory of tax- 
 ation is not consistent with his theory of a social organism. 
 For if the state is an organism (as he maintains in spite of 
 his own refutation of the doctrine), taxation should be based 
 upon the economic ability of the individual, apart from any 
 personal needs; other, at least, than those of the necessary 
 minimum, since as a member of the organism he must exist 
 and act to the extent of his capacity for the whole, and not 
 for himself. 
 
 III. The Utilitarian Theory of the State and 
 
 Taxation. 
 
 While almost any theory of the state possesses certain 
 utilitarian characteristics, there is nevertheless a distinctively 
 .utilitarian theory based upon utilitarian ideas; and while 
 
435] POLITICAL BASIS AND PRINCIPLES 99 
 
 utilitarian principles have been applied to taxation mainly 
 from an ethical or an economic point of view, there is an 
 underlying basis in a utilitarian political philosophy. It is 
 this latter point of view, as furnishing a basis for principles 
 of taxation, that I wish to consider here. In doing so I 
 shall confine myself to Mill and to Sax, though the former 
 considered the question more from an ethical, the latter from 
 an economic point of view. 
 
 I. The Theory of Mill. According to Mill mankind is of 
 such a nature that every individual seeks the greatest pos- 
 sible amount of pleasure and the avoidance of the greatest 
 possible amount of pain, the ideal aim of life being " the great- 
 est happiness of the greatest number." ' Now this ideal is 
 most nearly realized when every individual is given the full- 
 est liberty to act according to his own impulses and beliefs, 
 subject only to the like liberty of others.* It is in the main- 
 tenance of the conditions essential to this equal liberty that 
 the utility of a government consists. That is, the utility and 
 sanction of government consists in its usefulness to the ends 
 of the individual, a utility, therefore, that is " grounded upon 
 the permanent interests of man as a progressive being." 
 And it is because these interests cannot be realized through 
 an independent life that they " authorize the subjection of 
 individual spontaneity to external control, but only in r-e- 
 spect to those actions which concern the interests of other 
 people." But such a common interest is limited to the 
 maintenance of the conditions of the free activity of the in- 
 dividual, in a word, to self-protection. Indeed, says Mill, 
 *' the sole end for which mankind are warranted, individually 
 or collectively, in interfering with the liberty of action of any 
 of their number, is self-protection," ^ With the functions of 
 
 • Cf. Mill, Utilitarianism. ' Cf. Mill, On Liberty, ch, 3 and 4. 
 
 * On Liberty, Introduction. 
 
lOO JUSTICE IN TAXATION {^436 
 
 government thus directed, but also thus restricted,' there is 
 developed the highest individuality, and by implication the 
 greatest happiness of the greatest number. 
 
 It will be noted that Mill arrives at the same conclusion 
 as Spencer respecting the functions of government; and we 
 shall see that he also arrives at essentially the same princi- 
 ples of taxation, derived, as with Spencer, from the relations 
 of the individual to the functions of government, but also 
 with the ethical ideal uppermost in mind. For with Mill 
 the protection that guarantees equal liberty of performance, 
 of the development of individuality, and so of the highest 
 happiness of the individual and of mankind, is of interest to 
 all since all are benefited by it. And hence, " every one 
 who receives the protection of society owes a return for the 
 benefit, and the fact of living in society renders it indis- 
 pensable that each should be bound to observe a certain line 
 of conduct towards the rest." And among other things, 
 this " line of conduct " consists " in each person bearing his 
 share (to be fixed on some equitable principle") of the labors 
 and sacrifices incurred for defending the society or its mem- 
 bers from injury and molestation." "^ 
 
 But how, according to Mill, is the " share " of each to be 
 determined? It must, he says, be upon some "equitable 
 principle," and such a principle he finds contained in the 
 idea of " equality." Equality is regarded as the basic prin- 
 ciple of government, whose chief function it is to maintain 
 equal liberty in the enjoyment of pleasures,^ and equal con- 
 
 * In his later life Mill did not so restrict the functions of government, though he 
 did not change his utilitatian ideas or his principles of taxation. Cf. for example, 
 bis Autobiography and the later editions of his Political Economy, 
 
 ' On Liberty, ch. 4. 
 
 * With Mill " pleasure" is not merely Hedonistic, sensual, but it is a " happi» 
 ness " that includes intellectual pleasures, and which, indeed, with doubtful con- 
 siiiency, Mill makes the highest pleasure. Cf. Mill, Utilitarianism; and Green^ 
 Prolegomena, p. 168 et seq. 
 
437] POLITICAL BASIS AND PRINCIPLES loi 
 
 ditions in the avoidance of pains. Therefore, for the labor 
 and sacrifices incurred in maintaining these equal liberties 
 and conditions there should be an " equality of sacrifice" on 
 the part of those benefited; or "equality of sacrifice" 
 should be the guiding principle of taxation. That is, the 
 government should " apportion the contribution of each 
 person towards the expenses of government so that he 
 shall feel neither more nor less inconvenience from his 
 share of the payment than every other person experiences 
 from his." ' 
 
 We shall postpone for future discussion the merits of this 
 principle as an economic or an ethical principle and inquire 
 here, as in the case of the preceding theory, whether the 
 principle is consistent with the theory of the state upon 
 which it is founded, and whether this theory of the state is 
 adequate to the determination of satisfactory principles. 
 
 I. The theory of Mill, at the outset, has the advantage 
 over either of the preceding theories in that it assumes an 
 ethical end in the purpose of the state, and involves ethical 
 relations among individuals as they exist in society, what- 
 ever may be said of the ethical end in itself. Granting, 
 however, the ethical ideal, and also the assumption that the 
 ideal is best attained by the maintenance of an equal liberty 
 of individual action, of individual direction of one's activities 
 — one's emotions and ideals — and equality would rightly 
 seem to be the justly dominating principle of social life. 
 Hence, also, it is that in the maintenance of the conditions of 
 equal liberty there should be an equality of individual sacri- 
 fice corresponding to the equal benefits derived from the 
 equal liberty. As individuals share equally in the benefits, 
 so also should they share equally in the sacrifices necessary 
 to obtain them. 
 
 It is further not only consistent with the theory of Mill, 
 
 ^ Mill, Political Economy, bk. v., ch. 2, § 2. 
 
I02 JUSTICE IN TAXATION [438 
 
 but also its merit, that it fairly solves the problem of abso- 
 lute and relative equality, the absolute equality being of a 
 subjective, the relative equality of an objective character. 
 For with respect to the property enjoyed under the protec- 
 tion, or guaranteed liberty, of the government, there is only 
 a relative equality of benefits, and so there is and should be 
 only a relative equality in the goods given up for the sup- 
 port of the government; but with respect to the conditions 
 of liberty in the free use of our faculties, so far as the gov- 
 ernment is concerned in them, there is an absolute equality 
 of subjective interest, and hence there should be an absolute 
 equality of subjective sacrifice for the maintenance of those 
 conditions. Such an equality is found in Mill's subjective 
 "equality of sacrifice" as the norm for the distribution of 
 taxes. 
 
 (2) But apart from the question whether equality of sac- 
 rifice is the ideal norm of taxation — a question to be con- 
 sidered later — the utilitarian theory of Mill is otherwise 
 defective. True, he rightly considers the question from the 
 point of view of the ultimate, and not the immediate, end of 
 the state, and therefore escapes the criticisms passed upon 
 the protective theory. But the faults of the theory arise 
 mainly from the defectiveness of its ethical standard which 
 we shall have occasion elsewhere to criticise. Besides, the 
 theory is further defective in that its ideals and results are 
 essentially of a subjective character, and so are incapable of 
 the necessary quantitative determination. Nor would it be 
 easy to find in the Greatest Happiness principle any definite 
 standard for deviations from the rule of universality in the 
 tax obligation for the maintenance of the conditions of equal 
 liberty. And there would be the same difficulty in de- 
 termining these exceptions on the principle of equality of 
 subjective sacrifice. 
 
 2. T/te Utilitaria7i Theory of Sax and the Austrian School. 
 
439] POLITICAL BASIS AND PRINCIPLES 103 
 
 A far more elaborate attempt to place taxation upon utili- 
 tarian principles is to be found in Sax and the Austrian 
 school of economists.' But with them the theory loses its 
 ethical character and assumes a distinctly economic form. 
 Yet the theory is founded upon the utilitarian principle of 
 pleasure and pain, a principle that it is assumed applies 
 equally to the collective and to the individual life. That is 
 to say, pleasure and pain are supposed to determine col- 
 lective activity in precisely the same way that they determine 
 individual activity. And, indeed, the collective life has the 
 same end in view — the increase of the sum total of pleasure ; 
 and, further, it exists to promote this end wherever it is 
 more competent than individual action. 
 
 As worked out by Sax the theory, in brief, is as follows: 
 Man is a creature of wants — sensuous and intellectual, moral 
 and religious, social and economic, etc., etc. — whose satis- 
 faction with the least possible pain, or sacrifice, to himself is 
 the aim of his life. Of these wants, infinite in their variety, 
 some are satisfied by the individual directly, others by the 
 associated or collective action of individuals. The former 
 are called collective wants, the latter individual wants. Of 
 the collective wants, which alone concern us, some are satis- 
 fied by voluntary associations within the state, others by 
 society as a collective whole, organized as a body politic. — 
 by the state itself. But however satisfied, the ruling principle 
 of all wants is : the greatest possible satisfaction with the 
 least possible effort — with the least individual sacrifice. 
 
 Now this principle not only determines all collective action 
 but also what action shall become collective, that is, the func- 
 
 »Sax, Grundlegung der theoretischen Staatswirthschafl ; z\%o. Die Frogressiv- 
 steuer ; '^itstr, N'atural Value; Ricca-Salerno, Scienza della Finama ; Flora, 
 Scienza delle Finanze. The work of Sax is profuse and difficult; that of Ricca- 
 Salerno brief and clear. A very good statement of this theory is given by Flora in 
 the Rassegna, for August, 1893, ii^ an article entitled, // Concetto della Economia 
 Finanziaria. 
 
I04 JUSTICE IN TAXATION [440 
 
 tions of government. These functions extend to the satis- 
 faction of all wants that could not be satisfied by individual 
 effort, or if so only by a greater sum total of individual sac- 
 rifice. These wants have no absolute restriction but are rel- 
 ative to the conditions of a given civilization, to the convic- 
 tions of a people. As Flora says, " The measure of the 
 action of a state is a product of the wills of its members," ' 
 but wills that are determined by ideals of pleasure and pain. 
 
 That is to say, collective wants of whatever kind are de- 
 termined by the law of satisfaction common to all wants, a 
 condition thai follows from the nature of the individual and 
 of society. For collective want, in its last analysis, like all 
 want, necessarily pertains to psycho-physical organisms and 
 not to a personified collective being that has only mythical 
 existence. Hence, collective action, like individual action, 
 must be determined by the law of greatest utility and of least 
 disutility, in a word, by the law of " marginal " utility. 
 Hence, also, the same law must determine principles, or 
 more strictly laws of taxation. 
 
 In this simple law of the satisfaction of want Sax thinks 
 that he has found the key to the solution of the whole prob- 
 lem of true principles of taxation, and, indeed, in its sim- 
 plicity he finds a guarantee of its validity.'' But Sax does 
 not discover any new principle from this law of utility, for 
 his " equivalence of burdens," which he deduces from the 
 law of marginal utility, is in reality nothing but Mill's 
 " equality of sacrifice," in spite of the assumption to the 
 contrary. Indeed, Sax sums up his principle in almost the 
 exact words of Mill; for his principle of taxation is: that 
 "every individual should value the goods taken from him as 
 highly as every other individual values those taken from 
 him." 3 In other words, the marginal utility of goods taken 
 
 * op. cit., p. 8. 
 
 * " Die Einfachkeit der Losung ist eine Biirgschaft ihrer Richtigkeit." Sax, op. 
 iil., p. 308. ' Ibid., p. 514. See ante, p. 88. 
 
441] POLITICAL BASIS AND PRINCIPLES 105 
 
 as a tax should produce an equivalent sacrifice. Yet in his 
 method of treatment Sax differs quite materially from Mill, 
 particularly in relation to collective wants and in confining 
 himself solely to the view-point of economics. For with Sax 
 the political basis is put into the background, while the 
 ethical is considered as having no place in determining prin- 
 ciples of taxation, since taxation has to do with what is and 
 not with what ought to be. 
 
 A criticism of the theory of Sax must, therefore, be made 
 in connection with the economic basis of taxation. But with 
 respect to the political basis it may be observed, that if we 
 grant the primary assumptions of Sax his conclusions would 
 seem to follow. We cannot, however, concede that the 
 economic law of marginal utility, based upon self-interest, 
 determines collective action in precisely the same way that 
 it determines the economic action of the individual; nor 
 that economic laws take precedence over ethical considera- 
 tions in the determination of principles of taxation ; or that 
 ethical principles are nothing but the results of the action of 
 economic laws, as is virtually assumed by Sax. And because 
 of the faultiness of these assumptions the political basis fails 
 as a basis for principles of taxation. The theory is, further, 
 like Mill's too subjective, too abstract. We postpone further 
 criticism. 
 
 But whatever criticism may be passed upon the theory 
 of Sax it must be admitted that his general views are not 
 only suggestive but also contain much truth. The chief 
 merits of his treatment are : Its conception of the state, as a 
 social organization essential to the highest development of 
 the individual, and yet not itself a social organism ; its recog- 
 nition of the flexibility and the relativity of collective wants, 
 and therefore of the functions of government; its rich sug- 
 gestiveness in making the philosophy of taxation a part of 
 the general philosophy of human wants ; its emphasis upon 
 
I06 JUSTICE IN TAXATION [442- 
 
 the satisfaction of wants, rather than upon the benefits of gov- 
 ernment, as the measure of taxation ; though by faiHng in a 
 due recognition of the ethico-social nature of collective wants, 
 and so of the implications involved therein, he fails to dis- 
 cover the true norm that should determine their satisfaction. 
 
 IV. Social Theories and Taxation 
 
 We have thus far treated of theories that pertain to histor- 
 ical or actual forms of state and government, and it may be 
 well before closing the present chapter to say a word respect- 
 ing the character of taxation involved in such ideal social 
 theories as anarchism, communism and socialism. True, 
 such theories may not be able to throw much light on prin- 
 ciples of taxation that are consistent with prevailing notions 
 of the political state, since the total abolition or the com- 
 plete transformation of such states is a part of their scheme 
 of taxation. And yet they are not wholly without their les- 
 sons in their conceptions of the nature of individuals, their 
 relations to each other in society, and their mutual obliga- 
 tions in their associations with each other. 
 
 I. Anaj'chism. Nominally under anarchism there is no 
 state, but only voluntary associations. Force as a coercive, 
 collective power, is completely wanting. All association, 
 and therefore all political association, must be voluntary, 
 else there would be a denial of individual liberty ; and for 
 the same reason all support of these voluntary associations, 
 of whatever sort, must likewise be a voluntary support. 
 Membership in the association, and therefore support of it, 
 is permanent or temporary according to the choice of the 
 individual. 
 
 Under such a social system the conscience, or the ethical 
 standard, of the individual must be the sole determinant of 
 the amount of individual contributions, as no force can be 
 applied. Should an association forbid membership to any 
 
443] POLITICAL BASIS AND PRINCIPLES 107 
 
 individual, or enforce contributions as a condition of mem- 
 bership, it would defeat its own purpose and repudiate its 
 own notion of individual liberty. Yet, until the millennium 
 appears, or so long as human nature remains as it is, en- 
 forcement of contribution, and the determination of the pro- 
 portionate share of each, is inevitable. The conscience of 
 the individual can not, as yet, be trusted to determine his 
 share of the necessary contributions. Nevertheless, the 
 anarchist view has its lesson in its emphasis upon the volun- 
 tary side of political society, and upon the ethical character 
 (at least by implication) of the obligation to contribute for 
 its support. And yet there is only a half-truth in this 
 doctrine. There must be a social determination and a 
 social enforcement, else the association must cease to exist. 
 2. Communism. Communism in its objective form is 
 little more than the constructive side of philosophic an- 
 archism,' As with anarthism political and industrial society 
 are organized in one common Association, but while the 
 association is voluntary, communistic ideals do not preclude 
 the enforcement of its laws. Communism, further, finds a 
 definite principle of association in the idea of the brother- 
 hood of man, from which it deduces as a principle of col- 
 lective activity : " From each according to his ability, to 
 each according to his needs." This principle which should 
 actuate all social effort must also control the contributions 
 which it involves. True, technically speaking, there is no 
 taxation in a communistic society, since the officers of the 
 community share in the product on the same basis as the 
 producers. But the support of the officers, and the provi- 
 sion of the material wants of the government from the com- 
 mon product is as much taxation as a direct levy upon the 
 property or income of the individual ; for in either case the 
 support of the government comes from individual labor and 
 
 * See Benjamin F. Tucker, Instead of a Book. 
 
I08 JUSTICE IN TAXATION [444 
 
 effort, from the giving up of the results of one's own labor 
 to the community. And since the common fund is the re- 
 sult of the combined labor of the whole, each producing 
 according to his ability, the burden of the support of the 
 community is necessarily proportioned to the ability of its 
 members. Here we virtually have " universality " and 
 " ability " as the two cardinal principles of taxation, deduci- 
 ble from the nature of the social organization and the 
 ethical ideal upon which it is founded — the brotherhood of 
 man. These principles are both consistent and sound. The 
 error of communism lies in the assumptions which it bases 
 upon the idea of a common brotherhood, particularly with 
 respect to the nature and character of the collective life. It 
 exaggerates the communal idea as anarchism does that of 
 the individual. Its great merit is the emphasis it places 
 upon the ethical side of social life, 
 
 3. Socialism. So many social ideals are included under 
 this caption that I must confine myself to that type of social- 
 ism that is known as Scientific Socialism, or Collectivism — 
 the socialism that would abolish political states — the Polizei- 
 Staat — and establish in their stead industrial states, which 
 are to own all the means of production and to direct and 
 control all industries. Under such a system, it is assumed, 
 there will be no occasion for the exercise of police powers, 
 and the state will have only economic functions to per- 
 form. Yet every individual must be guaranteed an equal 
 opportunity in the satisfaction of his economic wants. Such 
 guarantee, however, is supposedly fulfilled by the system 
 itself, which ofTers the same opportunity to all to make use 
 of the means of production. That is to say, the equality, 
 which it is assumed is the fundamental human right, and the 
 basic principle of the state, is an "equality of opportunity," 
 an equality of use, not an equality of possession. Hence 
 the quantity of goods acquired by each individual for the 
 
445] POLITICAL BASIS AND PRINCIPLES 109 
 
 satisfaction of his wants should depend upon his ability and 
 inclination to labor, as in the system of Rodbertus ; but in 
 the less just system of Marx it depends upon the " average 
 labor time" necessary for the production of commodities. 
 And the same principle that determines the share of each in 
 the common product, must determine, also, the contribu- 
 tions of each to the common reservoir, the common fund, 
 out of which the shares are distributed. 
 
 But the government is also maintained out of the common 
 fund. Upon what principle, then, is the burden of support- 
 ing the government distributed? Necessarily, the share of 
 the common burden must depend upon the portion that each 
 contributes to the common product. In other words, the 
 distribution of the expenses of the government will be rela- 
 tive to the standard of private wants and the degree of their 
 satisfaction ; or, in brief, upon the use that one makes of his 
 opportunities. Nominally, then, the principle of sharing the 
 common expense — for there is no taxation — is the ability to 
 satisfy private wants, or rather to provide the means for their 
 satisfaction. But more strictly, the principle is that of 
 economic benefits, the contribution of each being propor- 
 tioned to the actual use made of the economic opportunities 
 afforded by the government. 
 
 Upon the assumption of the sociaHstic conception of the 
 state this conclusion cannot be gainsaid. It is logical and 
 just. But there is not the same theoretical justice in the 
 distribution of the burden upon the basis of the "labor- 
 time" theory of Marx, since those having less than the 
 average capacity of production are credited with more than 
 they actually contribute, while those having a capacity above 
 the average are credited with less than they actually con- 
 tribute. The former receive benefits that are in excess of 
 their power of production, and so of their contribution to the 
 common fund ; the latter receive benefits that are less than 
 
,10 JUSTICE IN TAXATION [446 
 
 their product, or their contribution. On the other hand, 
 with no type of collectivism is there any exemption allowed 
 for those who are capable of producing, but only for the 
 incapables — the physical or mental incapables. Those who 
 are able to produce must do so or starve, and must therefore 
 contribute to the common burden in the same proportion 
 that they satisfy their own economic wants, whether or not 
 these wants are satisfied according to the ability of the 
 individual, or the average ability of individuals. So that 
 from this point of view the contribution may be regarded as 
 based upon the abihty of the individual as measured by 
 actual product, or by the average ability of individuals as 
 measured by their average product. That is, the ability is 
 determined by the power of production, and not by the 
 necessities of consumption ; and therefore there can logically 
 be no exemption based upon the needs of the individual, 
 apart from his incapacity. 
 
 If we consider this theory of public contributions from the 
 point of view of benefits, we find that it is defective in that it 
 confines benefits to the purely economic benefit of equal 
 opportunities for production ; and if we regard it from the 
 point of view of ability we find it defective in so far as it 
 confines ability to the ability to produce. But the real 
 defect of the socialistic system of taxation, if we may be per- 
 mitted to use the term, lies in its fundamental conception of 
 a purely economic state, and in its conception of justice 
 as consisting solely in the economic equality of opportunity. 
 Its important lesson is, perhaps, its emphasis upon the social 
 character of production, upon the joint interest of the mem- 
 bers and of the collective whole of society in the social pro- 
 duct, and upon the joint responsibility in the maintenance 
 of the government. But it views the relations of the individ- 
 uals to each other and to the state too entirely from an eco- 
 nomic point of view, and, indeed, from the point of view of 
 production alone. 
 
44?] POLITICAL BASIS AND PRINCIPLES m 
 
 With respect to the principles of taxation state and Kath- 
 eder socialism are not essentially socialistic, as they would 
 not wholly convert the political into the industrial state, nor 
 equalize the burdens of government by equalizing the oppor- 
 tunities of production. They are specially characterized by 
 the emphasis they give to the ethical side of social life, from 
 which they justly deduce as a principle of taxation the ability 
 of the individual to pay ; and hence also are given a wider 
 range in considering the problem of exemptions. The social 
 side of their theory — the distribution of wealth — is a prob- 
 lem of political policy, and not of taxation." 
 
 V. Conclusions as to True Political Basis and 
 Principles of Taxation. 
 
 In the preceding discussion of political theories relative to 
 a political basis of taxation, we have attempted to touch only 
 upon such theories as have exercised the greatest influence, 
 either theoretical or practical, in matters of taxation, together 
 with a brief reference to social theories that antagonize the 
 existing state. Of the latter class we found that while they 
 contain important truths, they are but half-truths at the 
 best ; and further, their lessons have little practical signifi- 
 cance since they have not to do with actual conditions, but 
 with ideals whose consummation must wait for the dawn of 
 the millennium. Or again, they make false appHcations of 
 principles that are true in themselves. 
 
 In the theories of the first class many important truths 
 were also found, but we were unable to find in any of them 
 a consistent and logical development of principles directly 
 deducible from the political basis that formed their primary 
 assumptions. Besides a lack of logical development we 
 found, also, an omission of important factors in the problem. 
 But what to our mind constitutes their fundamental defect, is 
 
 ^ Cf. Vocke, Die Ab^abtn, Auflagen und die Steuern, p. 476. 
 
112 JUSTICE IN TAXATION [44^ 
 
 their conception of the nature and purpose of the state in its 
 relation to the individual ; together also with a deduction of 
 principles from the immediate functions of government in- 
 stead of from the ultimate ends of the state. 
 
 The political basis of taxation is simply a conception, or 
 theory, of the state in which is found the justification and 
 character of taxation, and from which principles of taxation 
 logically and naturally flow. Such a theory must compre- 
 hend not only the nature and end of the state, but also the 
 nature and end of the individual, as person, since each is the 
 counterpart of the other and by itself is but an abstraction. 
 / But man, as an end in himself, is essentially and fundamen- 
 / tally ethical, and hence principles that govern taxation, as 
 ; also all social relations, should conform to ethical standards 
 ,i and ideals, and at the same time should conform to the 
 
 political conception upon which they are based. 
 
 The theory of the state outlined in the preceding chapter, 
 it is believed, answers these requirements. It recognizes 
 the obligation of the individual and the rights of the state, 
 the voluntary and the compulsory character of taxation ; it 
 recognizes the universal dependence upon the state for the 
 highest individual development, and thereby inculcates the 
 principle of " universality " in taxation ; it recognizes the 
 ethical nature of the individual and the ethical nature of 
 social relations, and thereby inculcates the principle of 
 equity, or "equality" in taxation as its highest principle. 
 These, Universality and Equality, are, in fact, the cardinal 
 principles of taxation deducible from a political basis — from 
 a true theory of the state — and may, therefore, be called the 
 political principles of taxation. All other principles are but 
 modifications of these. These two principles, indeed, are» 
 with greater or less logic, found in all theories of taxation, 
 but all theories do not find a sufficient basis in their concep- 
 tion of the state for the modification, of these principles that 
 
449 POLITICAL BASIS AND PRINCIPLES 113 
 
 are necessitated by economic and ethical considerations. A 
 basis for the modification and limitation of these principles 
 is, however, to be found in the theory of the state that we 
 have upheld as the basis for all principles of taxation. The 
 cardinal principles are in themselves abstract and general in 
 character, and result from the viewpoint of the general rela- 
 tion of the individual to the state. But in their concrete 
 application the actual conditions of life, with reference to 
 ethical aims and standards, must be considered, the neces- 
 sity of this consideration resulting from the ethical nature of 
 the individual and the state, such as we have conceived 
 them to be. In brief, the modifications of the two primary 
 principles, universality and equality, no less than the princi- 
 ples themselves, are, as they must be in every consistent 
 theory, the necessary implications of the conception of the 
 state, and result naturally from the logical development of 
 these implications. The main problem, now, is to deter- 
 mine the basis and character of the equality, and the limita- 
 tions that are to be put upon the principle of universality. 
 These can not be determined by the purely political aspect 
 of the question, but only by the economic and ethical 
 aspects. These aspects we shall consider in the two follow- 
 ing chapters. 
 
CHAPTER V 
 
 THE ECONOMIC BASIS AND PRINCIPLES OF TAXATION 
 
 As a theory of the state implies taxation, so taxation im- 
 plies the economic relation of the individual to the state. 
 A political basis and political principles of taxation imply, 
 therefore, an economic basis and economic principles. By 
 an economic basis, then, is understood the economic relation 
 that the individual sustains to the state; and by economic 
 principles the principles that should determine the portion 
 of private wealth that each individual should contribute to 
 the ends of the state, or the relative satisfaction of private 
 and collective needs. The question is not directly con- 
 cerned with the economic effects of taxation, although these 
 effects are indirectly involved. The economic basis and 
 principles of taxation are, in part, an interpretation, and, in 
 part, a modification of the political basis and political 
 principles. 
 
 The economic aspect of the question is not, therefore, an 
 independent problem, but simply one phase of the problem 
 of taxation, though, indeed, a very important phase. In- 
 deed, its importance has led some economists to consider 
 the question of taxation as though it were wholly an econ- 
 omic one, to be determined by the simple application of 
 economic laws. Taxation is treated as though only the 
 economic relations of individuals to the state were involved. 
 In the political basis they see only an economic basis, and in 
 the political principles only economic principles. Indeed, it 
 is expressly or tacitly implied by them that the application of 
 114 [450 
 
45 I ] ECONOMIC BASIS AND PRINCIPLES 115 
 
 economic principles and laws will in all cases best attain the 
 ends of justice. Taken by itself, however, this is but a super- 
 ficial view of the problem. For, in the taking of economic 
 values for its support and maintenance — the execution of its 
 functions — the state, through its government, enters into a 
 most vital relation with the individual ; since the source of 
 the economic values taken by the state is likewise the source 
 of those values that go to the maintenance of life, and of the 
 material conditions that are necessary to the development of 
 human personality. This vital relation, then, is something 
 more than an economic one. Because it relates to 2i person, 
 and so to an ethical being, it has ethical as well as economic 
 importance. 
 
 However, there is an economic side to the question which 
 may be abstracted from other relations, just as in a theory 
 of knowledge sensation, perception, judgment, etc., may be 
 abstracted from the unified process that alone makes knowl- 
 edge possible. The state must ultimately determine, as it is 
 ultimately responsible for, the amount of those values that 
 are diverted from the satisfaction of private wants to the 
 satisfaction of collective wants — the needs of the government. _ 
 It is, therefore, important that there should be a definite un- 
 derstanding of the economic basis and economic principles 
 that should control this distribution. 
 
 In the present chapter we shall attempt to consider this 
 economic aspect of the question of taxation. In doing so we 
 shall not only review such theories as would solve the prob- 
 lem wholly along economic lines, but shall consider the 
 economic side of other theories. As these theories differ, 
 in the main, according to different conceptions of the char- 
 acter and importance of different departments of economics 
 — as Production, Distribution, Exchange and Consumption; 
 or according to different conceptions of economic theory and 
 economic laws, we shall consider the subject under these 
 
1,6 JUSTICE IN TAXATION [452 
 
 several heads, using different economic theories as main 
 divisions. 
 
 I. The Physiocrats and the Single Takers. 
 
 It was the theory of the first school of scientific economists 
 — the Physiocrats — and is the theory of their modern repre- 
 sentatives — the Single Taxers — that the whole expense of 
 government should be met out of the proceeds from the 
 land, from the proditit net or the "economic rent." Let us 
 attempt to ascertain the economic basis and the economic 
 principles underlying this theory. Although they reach 
 practically the same result we shall find that the earlier and 
 the later representatives of this theory employ somewhat dif- 
 ferent lines of argument. 
 
 I. The Physiocrats. According to the doctrine of the 
 Physiocrats land alone produces 2. prodidt net, a net surplus 
 above the expenses of production ; therefore upon whatever 
 form of property or income a tax may be imposed its ulti- 
 mate incidence must be upon this produit net, as otherwise 
 production must cease and starvation follow. Hence, to 
 avoid unnecessary expenses of collection and added costs 
 due to the advancement of the taxes, all taxes should be 
 imposed in the first instance upon the landed proprietors.* 
 Moreover, as only the proprietors of land obtain a net pro- 
 duct, they are the only class that has any interest in a stable 
 government. Indeed, a net product and a stable govern- 
 ment mutually condition each other. For "without good 
 government and tranquility there will be no net product,, 
 and without a net product no government and no society."" 
 Security and tranquility increase the revenue of each. 
 Because, therefore, of the mutual interest and mutual de- 
 pendence of proprietors and the government they should 
 share about equally in the net product.^ 
 
 ^ Cf. Turgot, Works, vol. iv, p. 306. 
 
 « Quesnay, Despotume de la Chine, ch. 8, sec. 20. ' Cf. Quesnay, Ibid. 
 
453] ECONOMIC BASIS AND PRINCIPLES u; 
 
 The doctrine of a produit net as applied to taxation is 
 most fully developed by Turgot who assigns several reasons 
 for a single tax on land. His argument we may summarize 
 as follows : The object of a tax " is for the preservation of 
 property, not to lose it, — and hence should be upon income, 
 not upon property;"^ but "the proprietor of land is the 
 only one who has a true income" — 2i produit net — and there- 
 fore " he alone has an interest in preserving the permanent 
 order of society," for to the industrial class any change of 
 ownership would be but a change of employers.' The tax_ 
 sho uld, the refore, be paid out of ^ the "true income. " and to 
 force it from any other income, or to make it exceed this 
 income, would check production 'and so dry up the source 
 of the revenue of the state.3 Moreover, any other tax is 
 always shifted to the proprietor by being added to the cost 
 of production ;'• and to cause the laboring and industrial 
 classes to advance the tax is to produce their ruin, since 
 they have no disposable income.^ On the other hand, " it 
 is impossible to make the consumers, who are not pro- 
 prietors, pay a tax upon consumption, because from the 
 moment it is established they are forced either to restrain 
 their consumption or to diminish the price which they can 
 offer for the production which they consume ; and because 
 either method will throw the tax upon the producers, or 
 sellers, of those productions."^ Finally, a single tax on the 
 produce of land is demanded because an indirect tax — that 
 is, any tax except that upon the produit net — leads to frauds, 
 condemnation of goods, loss of the labor of the great num- 
 ber of men who are necessary to collect it, a war of the 
 government with its subjects, a disproportion between crime 
 and punishment, and " attacks liberty in a thousand ways."' 
 
 Thus we find that according to the doctrine of the Physio- 
 
 ' Turgot, Works, vol. iv, p. 215. * Ibid., p. 216. * Ibid., p. 220. 
 
 ♦ Ibid., p. 306. » Ibid., p. 313. » Ibid., p. 363. ^ Ibid., p. 208. 
 
Il8 JUSTICE IN TAXATION [454 
 
 crats the economic basis of taxation lies in the relation 
 which a certain class of society sustains to the government. 
 This class is that of the landed proprietors who alone can 
 have any interest in the government, since land alone pro- 
 duces a net product over and above that which is necessary in 
 order that there may be any production at all. But as the 
 net product that attaches to land would not exist but for the 
 government, the landlord should share it with the government 
 in the form of a tax. Not only has no other class any in- 
 terest in the government, but the net product of land is the 
 only fund out of which a tax can ultimately be paid. As the 
 net product is equally conditioned by landlords and the gov- 
 ernment we have, further, as the principle of its distribution, 
 as the economic principle of taxation, that the net product 
 should be distributed equally between landlords and the 
 government. Or, as the basis of the tax is the economic 
 interest which the proprietors of land have in the govern- 
 ment, the principle of its distribution is the extent of the in- 
 terest in the joint economic result — the produit net — which 
 is assumed to be a half interest. 
 
 Criticism of this theory may be brief. Not only is its 
 theory of incidence utterly erroneous,' but so also is its 
 theory of a net product^ upon which its theory of taxation 
 rests. Other factors of production than land yield a net 
 product upon which a tax may ultimately fall, and which is 
 equally with the net product from land conditioned by the 
 existence of government. It follows, therefore, even from 
 the view-point of the Physiocrats, that other classes than land- 
 lords have an interest in the government, and that the gov- 
 ernment has interest in other products than the net product 
 from land. Moreover, because a government is a condition 
 of a net product, or for that matter of any product, it does 
 
 * See, for example, Hume, Essay on Taxes. 
 
 * See Adam Smith, Wealth of Nations, bk. iv, ch. 9. 
 
455] ECONOMIC BASIS AND PRINCIPLES 119 
 
 not follow that the product must be distributed between the 
 producer and the government on the basis of the share of 
 each in its production. Indeed, if this were so the govern- 
 ment might claim the whole product beyond the barest 
 necessities of life. Because a government conditions pro- 
 duction it is not therefore a factor in production in the sense 
 that it should share in the product in proportion to its inter- 
 est in it. The fact is that the income of government bears 
 no relation whatever to its part in production. Its income, 
 and therefore taxation, depends upon its character and upon 
 the functions it assumes. And whether or not a tax should 
 be determined according to the principle of interests, it cer- 
 tainly is not to be determined by any joint interest in a» 
 economic product. But above all, government does some- 
 thing more than condition production. It is the condition 
 of the satisfaction of all of our wants, and therefore interest 
 in it is general and not special ; and for the maintenance of 
 these general interests — the interests of civilized life — gov- 
 ernment requires economic support from every citizen of 
 the state. 
 
 2. The Single Taxers. — The doctrine that the whole ex- 
 pense of government should be met by a single tax on land 
 was revived in more recent years by Henry George ' whose 
 doctrine is now known as that of the "single tax." By its 
 modern advocates, however, the argument for a single tax 
 takes on a somewhat different form from that of the Physio- 
 crats. By George and his followers the justice of a single 
 tax rests upon the Ricardian theory of rent ; only emphasis 
 is given to the social factor as producing differential advan- 
 tages that give rise to the phenomenon of rent, quite as 
 much as do differences in natural advantages. This rent is 
 akin to the prodiiit net and is called the nnearned increment 
 of land. But land is the birthright of man, a " gratuitous 
 
 • Henry Q&oxg<t, Progress and Poverty, 1880. 
 
I20 JUSTICE IN TAXATION [456 
 
 gift of Nature to men, the free bounty of the Creator to his 
 children." ' Therefore, the unearned increment from land, 
 the whole increment that is not produced by the labor of any 
 given individual, belongs to mankind, to society, and should 
 not be monopolized by any one or several individuals.' 
 Indeed, the government has a double claim upon the un- 
 earned increment : both because the land belongs to society, 
 and because a part, at least, of the unearned increment is 
 due to society, or is produced by it. Moreover, government 
 .has no right to touch any part of the increment of produc- 
 tion that is due to human labor, since by " natural law" the 
 product of one's own labor belongs to himself. " Whatever 
 a man brings forth, whatever he adds to the common stock 
 of wealth, belongs to him alone ; and it is wrong to take 
 from him any part of it." 3 
 
 According to this view of the single tax, there is in reality 
 no taxation, as the government simply appropir[ates to itself 
 the wealth accruing from natural advantages and from social 
 growth — wealth to which the individual has no valid claim, 
 but which of right belongs to the people as a whole, that is, 
 to their government. But as the U7iearned increment comes 
 first into the hands of individuals — the landlords — the taking 
 of it from them by the government maybe regarded as nom- 
 inal taxation, the landlords being the natural tax collectors.* 
 The economic basis of the tax thus comes to be the relation 
 subsisting between the government and the individual aris- 
 ing from the possession on the one side, and the ownership 
 on the other side, of the source of unearned increment. 
 
 As the privilege of possessing the source of the unearned 
 increment is regarded as an advantage to its possessor, it is 
 laid down as a principle of taxation, that " we ought to tax 
 
 * George, Single Tax Discussion, p. 76, Saratoga, 1890. 
 -« C/:, /<5iV., p. 83. '/bid.,^.^(). 
 
 *See ?>htz.vaiaM\, Natural Taxation, pp. Ii8-g. 
 
457] ECONOMIC BASIS AND PRINCIPLES i2l 
 
 men according to the special advantages they receive from 
 the community, thus putting all men on an equal plane."' 
 This is the principle of taxation according to benefits, and is 
 <:ommon to all " single taxers," who repudiate the principle 
 of ability as unjust or as an appeal " to sentiments of benevo- 
 lence and philanthropy."^ The principle is purely an eco- 
 nomic one, as the " advantage" is measured by " the market 
 value of the benefits conferred by government and by human 
 society," 3 the market value of ground rent. As the benefit 
 is measured by the extent of the ground rent, and is " con- 
 ferred by government and by human society," the tax, 
 according to George, should absorb the whole increment of 
 Jajid^hatJsjioXdk:eJqJiumaj^^ but Shearman, assum- 
 
 ing that such a tax would be in excess of the needs of govern- 
 ment, less consistently holds that the government should take 
 only such part of the ground rent as it needs, leaving the 
 rest to the landlords.-* >If, indeed, it is true that the whole 
 ground rent, the unearned increment, belongs of right to the 
 government, it is difificult to see the justice of any part of it 
 being retained by any class of society. The only just 
 method of distributing the surplus would be to distribute it 
 pro rata to every member of society. 
 
 That the doctrine of the "single tax" has the merit of 
 simplicity cannot be doubted, nor that it contains some de- 
 sirable features.5 We must, however, discredit its claim as a 
 panacea for all social ills, as the fanciful dream of an enthu- 
 
 ^ George, Shigle Tax Discussion, p. 83. " There can be but one strictly just 
 basis of taxation, and that is the basis of benefit received from the taxing power;" 
 Shearman, op. cit.. p. 228. 
 
 * George, Ibid., p. 82, and Shearman, Ibid., p. 227. 
 'Shearman, Ibid., p. 229. 
 
 * Cf. Shearman, op. cit., pp. 132-135; and also ch. 10. 
 
 * See Prof, J. B. Clark, Single Tax Discussion, p. 5. 
 
122 JUSTICE IN TAXATION [458 
 
 siast.' Nor can we grant that the " single tax," as a theory 
 of taxation, solves the problem of justice. Granting the 
 validity of the theory of social values, aud assuming its suffi- 
 ciency for purposes of public revenue, we would still have 
 the following criticisms to offer to the theory, as a theory of 
 taxation : 
 
 (i) It assumes as an economic basis for taxation, that 
 only one class in society bears such an economic relation to 
 the state that there rests upon it the obligation to support 
 the government, to pay taxes, to wit: the proprietors of 
 land ; whereas, in point of fact, the economic relation and 
 the consequent obligation rest upon every class of society, 
 upon every citizen of the state. (2) Not only does the 
 theory assume a limited economic relation, but it assumes as 
 the basis of this relation that land alone yields an unearned 
 increment, which, while it belongs to society, or to govern- 
 ment, comes in the first instance into the hands of the pos- 
 sessors of land ; whereas, land is not the only source of an 
 unearned increment — a rent or a qitasi-rGini — that arises 
 from social conditions, and therefore the rent of land is not 
 the only wealth, or source of revenue, which comes into the 
 hands of individuals, but which, according to the single tax 
 doctrine, belongs to the government. Apart from the ques- 
 tion of a quasi-r&nt in other factors of production than land,' 
 there are legal and capitalistic monopolies that produce 
 unearned increments quite as much as does the monopoly 
 of land. Moreover, there is no form of industry that is not 
 benefited by social growth. (3) It is further assumed that 
 the advantages of government lie in the possession of the 
 source of the unearned increment, and that this advantage 
 
 ^See George, Progress and Poveriy, B. ix, ch. 4; also, Shearman, ./Va/«ra/ 
 Taxation, ch. 13. 
 
 * On this point, see Marshall, Principles, B. vi, ch. 7; and Hobson, Economics 
 of Distribution, ch. 5. 
 
459] ECONOMIC BASIS AND PRINCIPLES 123 
 
 is the only ground for the imposition of a tax ; and therefore, 
 that a tax according to the benefits received from the gov- 
 ernment is the true principle of taxation. But as other 
 factors than land possess these advantages (which are made 
 the basis of taxation) it is difficult to see by what justice the 
 possessor of land alone should pay for the advantage of 
 obtaining an unearned increment. Besides, there are other 
 economic advantages produced by the state that equally 
 demand a recompense — as the maintenance of the social 
 conditions necessary to the pursuit of a livelihood. More- 
 over, in assuming that the unearned increment is the price 
 of a special advantage it is assumed that the advantage is 
 proportioned to the amount of the increment, a position 
 whose absurdity is at once seen when we reflect that the 
 ultimate advantage is confined to the privilege of gaining a 
 livelihood. Then, too, this privilege is common to all. 
 More than this, there is fn reality no payment for any special 
 advantages, as the government simply takes the unearned 
 increment, and upon this the landholder has no claim. (4) 
 In fact, it is a special feature of this theory that no individual 
 should undergo any burden of sacrifice for the purpose of 
 maintaining a government; that, indeed, the government 
 has no right to touch any part of private wealth that results 
 from one's own labor, but should support itself on the 
 economic values that belong to society as a whole, which is 
 to assert that there should be no taxation. But such an 
 assumption is opposed to any rational conception of the 
 nature of the state, and misconceives the nature of the 
 " natural right" to the product of one's own labor, since the 
 payment of a portion of this product to support the govern- 
 ment is a condition of its own existence. Yet, in the first 
 instance, a tax is imposed upon the present holders of land 
 who are made to pay penalty for the sin of past governments 
 in permitting private property in land — a species of confisca- 
 
124 JUSTICE IN TAXATION [460 
 
 tion, in spite of all refinements upon the word,' that is re- 
 pugnant to all sense of justice. 
 
 Various other forms of a single tax have been promul- 
 gated by different writers, though not so much from any 
 peculiar notion respecting the relation of the state to the 
 economic life of its members as from the conviction that a 
 single tax best realizes the ideal of a tax according to 
 ability. Such theories belong to the discussion of systems 
 of taxation, and need not be dwelt upon here. There is one 
 theory, however, that may be briefly touched upon, as it 
 assumes a certain economic relation between the individual 
 and the state as its economic basis. I refer to the theory of 
 Menier,^ who would obtain public revenue by a single tax 
 upon capital. 
 
 The argument of Menier is as follows: Capital is a 
 national product and therefore out of it alone should the 
 state derive its income, " the tax representing the expense 
 of giving value to, and the exploitation of, the national 
 capital." Moreover, since the state exists to further in- 
 dividual liberty and human personality — "the enfranchise- 
 ment of the individual" 3 — it should not lay any tax burden 
 upon the individual as such. " The tax," says Menier, 
 " ought not to know man, but only the national fortune. 
 But since this fortune is held by individuals they should pay 
 a tax in proportion to what they hold." ^ 
 
 The position is not wholly unlike that of George, since he 
 would take the tax out of the national capital upon which 
 the state has a claim because exploited by itself, the princi- 
 ple of taxation being a proportion to the amount of the 
 national capital individually possessed, no tax being im- 
 posed upon the individual, as such. But does not Menier 
 
 ' See Shearman, op. cit., p. 169. 
 
 * Theorie et Application de Plmpdi sur le Capital. 
 
 ' Op. cit., p. 192. * Ibid., p. 196. 
 
46 1 ] ECONOMIC BASIS AND PRINCIPLES 125 
 
 confuse a nominal and a real tax on capital, thus leading to 
 the untenable position that a tax on capital does not, while 
 a tax on income or other form of wealth does, interfere with 
 individual rights and individual liberty? Besides, income 
 quite as much as capital is a national product, and quite as 
 much as capital is given value by the government. Not the 
 least error of Menier, however, is the assumption that a tax 
 is upon property, not upon the person. Only persons can 
 have a responsible relation to the state, or be under obliga- 
 tions for its support. The state, it is true, demands prop- 
 erty, that is, economic goods, but the demand is and can be 
 only upon persons. Then, too, Menier falls into the error 
 of supposing that one's interest in the government and obli- 
 gation to it is directly proportional to the amount of capital 
 that he possesses. 
 
 II. The Classical School of Economists 
 
 I, The Benefit Theory of Taxation. The economic basis 
 of the classical economists rests upon their theory of the 
 state as the protector of persons and property, while their 
 principle of taxation is that the tax should be proportioned 
 to the benefits derived from the protection. The economic 
 aspect of taxation, in short, is simply the economic side of 
 their political doctrine. Hence, a tax is regarded as an 
 economic return for a presumably measurable benefit re- 
 ceived from the government. This conception dififers from 
 that of the Physiocrats only in the character and extent of 
 the content contained in the idea of benefits. Here the idea 
 is that the relation of the state to the individual is that of a 
 protector and guarantor of liberty, and that the individual 
 should compensate for the expense of this protection in pro- 
 portion to the benefits derived from it. It is an economic 
 relation that is the counterpart of the Contract theory of the 
 state, and is very largely an outgrowth of it. 
 
126 JUSTICE IN TAXATION [462 
 
 According to this view, then, a tax is considered as the 
 expense of protection, while the value of the protection is 
 measured by the amount of property protected. This is 
 implied in the famous dictum of Montesquieu : that taxes 
 are the payment of a part of one's property in order to 
 enjoy the remainder in security.' It is expressed still more 
 explicitly by Adam Smith, whose canon has become classic 
 on principles of taxation. Subjects, he says, should con- 
 tribute to the support of government " in proportion to the 
 revenue which they respectively enjoy under the protection 
 of the state. The expense of government to the individuals 
 of a great nation, is like the expense of management to the 
 joint tenants of a great estate, who are all obliged to con- 
 tribute in proportion to their interests in the estate." ' True, 
 this conception of taxation is given as an explanation of the 
 meaning of " ability," which is regarded as the basic prin- 
 ciple. But it is only by a confusion of ideas, or an incon- 
 sistency of thought, that the principle of ability can be con- 
 nected with the protection theory of the state. And yet this 
 confusion or inconsistency is found in most of the classical 
 economists. Its most extreme type is, perhaps, found in 
 Murhard, who bases the tax upon the protection of property ,3 
 yet would proportion the tax to "ability,"* expressly re- 
 pudiating a tax proportioned to the amount of income 
 enjoying the protection. 5 
 
 Such, in the main, is the view of most writers of this 
 school, some, like Murhard, emphasizing the protection of 
 
 * Montesquieu, Esprit des Lois, ch. I. 
 
 * Smith, Wealth 0/ Amotions, -p^.^i/^-^ (Rogers' edition). 
 
 ' " Steuern werden bezahlt zum Schutze des Eigenthums. Darum, und nur 
 darum gebe Ich Steuern." Murhard, Theorie und Polilik der Besteureung, p. 2P> 
 
 * For taxes are " am gUicklicbsten gewahlt, wo jeder Staatsgenosse im Verhaltniss 
 Seiner Krafte zu den Staats-Aufgaben beitragt." Ibid., p. 80. 
 
 » Cf. ibid., p. 26. 
 
463 J ECONOMIC BASIS AND PRINCIPLES 127 
 
 property, others, like Sismondi, emphasizing the protection 
 of persons.' From the point of view of consistency, how- 
 ever, Von Hock makes a distinct advance, since he not only 
 recognizes the protection of both persons and property, but 
 would have an equal tax for the former and a tax proportional 
 to the benefits of protection for the latter.'-' Like Sismondi, 
 too, he places the question squarely upon an economic 
 ground, making the tax a compensation for the services 
 received from the state.3 Yet in the hands of Von Hock the 
 protection principle loses much of its character, as, indeed, 
 it does also with Sismondi, since the term is made to include 
 practically all that is contained in the idea of national well- 
 being (das Wohl des Volkes). Protection, with such an 
 extended conception of its content, loses, too, any signifi- 
 cance that it might have as a basis of taxation, since it is 
 incapable of giving a principle that is consistent with itself, 
 for the distribution of the tax burden. 
 
 We have had occasion to criticise the principle of benefits 
 in the preceding chapter. As afTording an economic basis 
 and principles it is even more defective than it is as a polit- 
 ical principle. To have any validity from the view-point of 
 economics the benefits of protection must have a definite 
 assignable value, else the tax cannot be a compensation for 
 a value received. From the point of view of the protection 
 of persons it cannot be said that the benefit of the protection 
 is equal, as Von Hock assumes, nor that the benefits from 
 
 ' " L'impot doit etre considere par les citoyens comme une compensation de la 
 protection que le gouvernement accorde k leurs personnes et k leurspropriet^s. II 
 est juste que tous le supportent, en proportion des avantages que la societe leur 
 garantit, et des depenses que la societe fait pour eux." Economie Politique, vol, 
 II, p. 155. 
 
 ' Cf. Von Hock, Die offenilichen Abgaben und Schulden, §§ 1-4. 
 
 •" Jeder Abgabe ist eine Vergeltung der vom Staat geleisteten Dienste, und 
 erscheint darum nur dann gerechtfertigt, wenn der Dienst des Lohns werth ist." 
 Op, cie., p. 4. 
 
128 JUSTICE IN TAXATION [464 
 
 the protection of property are proportional to the amount of 
 property enjoying the protection, as most upholders of this 
 theory maintain. Still less is it possible to apportion the 
 tax to benefits when, as with Von Hock and Sismondi, bene- 
 fits are made to include such immaterial qualities as honor^ 
 glory, education, religion, national well-being, etc. But 
 apart from the impossibihty of determining the value of the 
 benefits, the economic relation between the individual and 
 the state cannot be expressed by the idea of compensation 
 for benefits received. Nor is this due simply to the fact that 
 the benefits are not measurable quantities. The falsity of 
 this conception rests chiefiy upon the fact that it is wholly 
 out of harmony with the social relations that a tax involves. 
 Indeed, the inadequacy of this conception would seem to be 
 felt by most of its defenders, since they, following Adam 
 Smith, interpret "benefits" as synonymous with " ability." 
 But the two ideas are totally distinct and mutually exclude 
 each other. As Bastable says : " So far as the ' benefits ' 
 or ' service ' principle is applied, it excludes the rule of tax- 
 ation according to ability." ' Most writers, however, who 
 accept the benefit principle (whether or not they make it 
 synonymous with ability) find a measure of benefits in the 
 assumption that the benefits of government are proportional 
 to the amount of property enjoyed or consumed. As ex- 
 pressed by Sir William Petty : " Every man ought to con- 
 tribute according to what he taketh to himself, and actually 
 enjoyeth." = With Petty this means, as with Hobbes, that 
 the benefit is proportional to what one consumes, and there- 
 fore that the tax should be a proportional tax on consump- 
 tion. This, too, is the tendency of the classical economists, 
 who would throw every safeguard around capital and pro- 
 
 * Bastable, Fut/ic Finance, p. 389. Gen. Walker and Mile. Royer, also of the 
 classical school, likewise repudiate the " benefit " principle. 
 
 * Petty, A Treatise of Taxes and Contributions, p. 83. 
 
465] ECONOMIC BASIS AND PRINCIPLES 129 
 
 duction. But not the amount of property that one possesses, 
 and still less what one consumes, nor any other portion 
 of income, is an adequate measure of the benefits of govern- 
 ment. Nor is the claim of government limited to any por- 
 tion of income. As Gen. Walker has well said, " the reve- 
 nue rights of the state attach equally to every portion of 
 private revenue, irrespective of the consideration whether 
 any such portion is to be spent or to be saved." ' But above 
 all this view of the economic aspect of taxation is at fault, 
 because it assumes a relation of economic equivalence where 
 no such equivalence is possible, and because it falsely as- 
 sumes that such an equivalence is the true basis and measure 
 of the tax. 
 
 2. The Exchange Theory. The same in principle as the 
 theory of " benefits," though different in point of view, is the 
 " exchange theory" of Bastiat and Perry. Although this 
 view of the tax was earlier expressed by Senior in his " Po- 
 litical Economy," with Bastiat and Perry it was made a part 
 of their economic theory, the collection and expenditure of 
 public revenue being regarded as determined by the same 
 principles of exchange that determine all economic ex- 
 changes. 
 
 The theory starts with the principle of the " division of 
 labor." '^ In all departments of economic activities, so the 
 argument runs, protection is required, and in the division of 
 labor in social and economic life the function of protection is 
 assigned to the government. For_tiie_iLsefviee-". that- the 
 govern m ent^perlornis-ia-proeuriTig the protec+ion- every-.ecp- 
 fiornic activity owes an^ '^equivalents -service 4a-ex£liaage.. 
 That_JSr--in the "division of labor," go vernnjent^perfoMiis 
 _one_sei:yice^— protection — in,exx:iiaTige for another^ervice — 
 contribirtionofjtaxes. Or taxation, like all private economic 
 
 1 Francis Walker, "The Bases of Taxation," in Pol. Sci. Quart, iii, p. II. 
 
 * Perry, Political Economy, p. 516. See also, Senior, Political Economy, p. 74. 
 
130 JUSTICE IN TAXATION [466 
 
 activity, finds its basis and its principles in a theory of ex- 
 change of equivalent economic services. As Perry puts it, 
 taxation " finds a ready and solid justification in the com- 
 mon principles of exchange." Indeed, " taxes demanded of 
 citizens by a lawful government which tolerably performs its 
 functions, are legitimate and just on principles of exchange 
 alone." ' For " value resides in services exchanged ; but 
 government is an essential prerequisite to any general 
 and satisfactory exchanges, since it contributes by direct 
 effort to the security of persons and property ; and justly 
 claims, therefore, from each citizen a compensation in return 
 for services thus rendered him.^"" The same thought is also 
 expressed by Bastiat, who declares that when a state renders 
 a service equal to the tax, there is only an exchange (il n'y 
 a qu'un ^change) ;3 and that a good or a bad use is made 
 of the tax according as the service of the state is, or is not, 
 equivalent to what the public gives in exchange — the tax.^ 
 
 In other words, according to the exchange theory of tax- 
 ation the basis of the tax is an economic " exchange of ser- 
 vices" betwen the government and the taxpayer. That is, 
 the government being a participating factor in all private 
 exchanges, it should find compensation for its " service " by 
 participating in the gains from these exchanges. Or, the 
 *' gains " accruing to individuals because of the service of the 
 government in providing protection and security, the indi- 
 viduals should share their gains with the government in ex- 
 change for its service. And from these assumptions we get 
 as a principle of taxation that individuals should contribute 
 to the cost of the service of the government " in proportion 
 to the gains of their exchanges." s 
 
 * Perry, Political Economy, p. 516. * Ibid., p. 515. 
 
 * Bastiat, Ce qu^ on voit et ce qu^ on ne voit pas, 
 
 * Bastiat, Sophismes Aconomiques, Oeuvrcs, iv, p. 47 (Ed. 1863). 
 •Perry, <?/.«'/., p. 516. 
 
467] ECONOMIC BASIS AND PRINCIPLES 131 
 
 • 
 
 As against this view of taxation we may note that the 
 state cannot be conceived of as simply an economic agency 
 in exchange, whose "service" in the exchange is to be 
 compensated for according to the principles of private 
 economic exchanges. Such a conception expresses neither 
 the relation of the state to the individual, nor that of the 
 individual to the state. True, the state does perform a ser- 
 vice for the individual and receives taxes from the individual, 
 but the '* service " and the tax are not related to each other 
 in the way of an economic exchange. Hence, the basis of 
 the tax is not to be found in the idea of an " exchange of 
 service." The services of the government are far more ex- 
 tensive than that which obtains to the individual from the 
 " gains of exchanges." And if the basis of taxation is not 
 to be found in the idea of an economic change, so neither 
 can the principles of taxation be expressed in terms of an 
 economic exchange. ^ 
 
 But even if we assume the fiction of an exchange, the 
 character of the " exchange of service " between the govern- 
 ment and the taxpayer is entirely different from that in- 
 volved in private exchanges. For in the former case, how- 
 ever voluntary may be the payment of taxes in the abstract, 
 there is a compulsory feature in the exchange that does not 
 attach to private exchanges, which are wholly voluntary. 
 In the former case, too, the terms of the exchange are made 
 by one party to the exchange — the government ; while in 
 the latter case the terms of the exchange are mutually de- 
 termined through the operation of economic laws — the law 
 of '• demand and supply," or, if you will, the law of " mar- 
 ginal utility." Finally, in the former case the normal basis 
 of the exchange is cost — cost of the government service ; in 
 the latter case the basis of the exchange is the value, or 
 " utility," of the exchange to both parties to the exchange 
 — the basis of profits, or gains. In fact, as pointed out 
 
132 JUSTICE IN TAXATION [468 
 
 by Sax,' between the two types of exchange there is only a 
 distant similarity (entfernte Aehnlichkeit). But at bottom 
 there is nothing new in this theory of taxation, except in 
 name and point of view. In reality it is nothing but the old 
 benefit theory in a new dress, the benefits being regarded as 
 measured by the " gains of exchanges," or the profits of 
 industry — a limitation as inadequate as any of the preced- 
 ing. Thus, the exchange theory contains all the defects of 
 the benefit theory in addition to those mentioned above ; 
 not the least being the absurdity of assuming that the ser- 
 vices of the state and the taxes are economic equivalents^ 
 indeed, as Bastiat says, must be. 
 
 3. Tke Insurance Theory. A somewhat different version 
 of the " benefit theory" is found in the " insurance theory" 
 of taxation. The most noted champion of this theory is 
 Thiers,' while it has the sanction of McCullochs and of E. 
 Peshine Smith.^ It is closely allied to the "joint-stock" 
 theory of Herbert Spencer,5 vvhich is found, also, as one of 
 the contradictions of Adam Smith.^ According to this 
 theory the state is comparable to a Joint-stock Insurance 
 Company, whose function it is to insure security of life and 
 property. Hence, a tax rests upon the same basis and the 
 same principles as the premium of an insurance company. 
 " As government renders services to each and every one of 
 its constituents," says E. Peshine Smith, " every one ought 
 to contribute to the expense of its maintenance in the ratio 
 that he receives advantage. It gives him security of his 
 person and his property. So far as his property is con- 
 cerned, it is apparent that his contribution should be esti- 
 
 1 Sax, Grundlegung, p. 54. * Thiers, De la Propriite, p. 355 et seq. 
 
 •McCuUoch, Taxation and Funding, T^. 17. 
 * E. Peshine Smith, Political Economy, p. 264. 
 •Spencer, Social Statics (abridg. ed.),p. 122. 
 •Adam Smith, op. cit., p. 415. 
 
469] ECONOMIC BASIS AND PRINCIPLES 133 
 
 mated as it would be by a private insurance company, by 
 the amount at stake." ' But Mr, Smith, unHke Thiers, con- 
 fines the application of the insurance principle to property, 
 rightly admitting the impossibility of making " the value of 
 personal security a basis for taxation," since " the value of 
 protection to the person is incapable of estimation." "^ 
 
 But a moment's reflection, however, is necessary to con- 
 vince us that the whole theory is even more false than the 
 " exchange " theory. As to the person, not only is it im- 
 possible to estimate the value of the protection — the insur- 
 ance — but the character of the " insurance " given by the 
 state is entirely different from that given by a private insur- 
 ance company ; while with property, though its value is 
 capable of estimation, there is a similar difference in the 
 character of the insurance. In the case of persons the state 
 does not guarantee a monetary compensation in case of 
 injury or loss of life, as does an insurance company, but 
 contents itself with punishing the aggressor if he is found; 
 or, at best, permits you to use its courts to compel com- 
 pensation from the aggressor. So, likewise, in the case 
 of property, the insurance company guarantees to make 
 good the whole of the insured property that is lost or 
 damaged, but the state, as Leroy-Beaulieu says, "will repair 
 no damages made either by natural causes or by man. If a 
 thief steals your property — the state will pursue the thief, 
 but if he has consumed your property the state will not 
 restore it." ^ 
 
 But above all, it is not true that the conception of insur- 
 ance rightly expresses the nature of the basis of taxation. 
 To quote Leroy-Beaulieu again, " The attributes of the state 
 are much more extensive than they would be if they were 
 confined to this conception.*" Equally false is it that taxes 
 
 ' Op. eit., p. 264. ' Op. cit., pp. 264-5. 
 
 * Leroy-Beaulieu, Traiti de la Science des Finances, p. 1 16. * Tbid., p. 115. 
 
134 JUSTICE IN TAXATION [470 
 
 are distributed on the same principle as an insurance 
 premium. The premium is determined not only " by the 
 amount at stake," but by the risk — by the probabilities of 
 life, or of loss — in each individual case ; the principle of tax 
 distribution is determined by the solidarity of interests of 
 the whole body of citizens, without regard to length of life 
 or the insecurity of property, 
 
 III. The Productive Theory of Taxation. 
 
 Conceiving of " production " as the production, by indi- 
 viduals, of material, exchangeable goods, and looking only 
 at the direct factors engaged in production, Adam Smith 
 held that all consumption of economic goods that is not di- 
 rected to further production is " unproductive consumption." 
 Hence the consumption of wealth by the government, in the 
 form of taxes, is unproductive consumption. In this Adam 
 Smith was followed by most of the early economists of the 
 classical school.* Bastiat and Perry, however, while they 
 regarded the government as a necessary evil, assumed that 
 its services have an economic value in exchange, not only 
 with relation to consumptive, but also with relation to pro- 
 ductive goods. But it remained for Wagner and Stein to 
 give a more exact appreciation of the function of govern- 
 ment in production. 
 
 According to Wagner the function of government in pro- 
 duction is to transform material goods (Sachgiiter) in the 
 form of a tax into immaterial goods (ofTentlichen Einricht- 
 ungen, Dienstleistungen). "Because it is indispensable to 
 the entire economic life, and for all private activity of 
 individuals, the services of the government (Staat), and 
 therefore the government itself, must be regarded, in an 
 
 ^ According to Ricardo taxes may affect production through their "tendency to 
 lessen the power to accumulate." Works, p. 88. (McCulloch'i edition.) For 
 views of McCulloch and others, see ante, p. 43 and notes. 
 
471] ECONOMIC BASIS AND PRINCIPLES 135 
 
 economic sense, as eminently productive." ' So likewise 
 Stein, who held more to the classical notion of the import- 
 ance of production, regarded the government' from the point 
 of view of its indispensableness to the building up of capital 
 (Kapitalbildungsprocess), and therefore not as an " unproduc- 
 tive consumer," but as an indispensable agent in production. 
 " In fact," says Stein, " all services and payments to the gov- 
 ernment (Staat) are, economically speaking, nothing else 
 than an integral part of the cost of production of every eco- 
 nomic product." =■ Therefore, the tax that goes to maintain 
 the government is simply a part of the necessary cost of 
 production. 
 
 From the view-point of Wagner, who emphasizes the 
 social side of production, and has in mind the totality of the 
 factors in production, without distinguishing the pre-condi- 
 tions from the immediate factors, the government is viewed 
 as a direct agent in production, and therefore the tax itself 
 as "eminently productive." From the view-point of Stein, 
 on the other hand, who regarded production more from the 
 standpoint of the individual, who emphasized the importance 
 of capital and capital formation (Kapitalbildung), and thought 
 of government as a condition precedent, government was 
 considered rather as an indirect than a direct agent in pro- 
 duction, and the tax itself as "reproductive;" and repro- 
 ductive in the sense that it enables the government 
 through its administration to maintain the conditions of cap- 
 ital-building, and "this reproductivity of the tax is, and will 
 remain, the absolute condition of the power to pay taxes 
 (Steuerkraft). therefore also the condition of taxes, and so 
 of civic life itself." 
 
 But although different in point of view, the "productive" 
 theory of Wagner and the " reproductive " theory of Stein 
 
 ^ Wagner, op. cit., i, p. 13. 
 
 • Finanzwisietiichaft, i, p. 15. • Ihid., ii , p. 359. 
 
136 JUSTICE IN TAXATION [472 
 
 are practically one and the same — a productive theory that 
 is nothing else than the old " give-and-take " (Leistung und 
 Gegenleistung) theory of taxation ; or, as Sax observes, " it 
 is a correlate of the "exchange theory.'"' But the field of 
 the exchange of service is here limited to the process of 
 production, or to capital building. Even Wagner notes the 
 parallel, and points out that in the state giving services for 
 taxes (Sachgiiter) there is a kind of an exchange (eine Art 
 Tausch), but that the conditions of the exchange are fixed 
 by the state. " Thus, the services of the state and taxes," 
 he adds, " appear as correlates of each other." * But w^ith 
 Wagner the exchange is not, as is implied in the exchange 
 theory, an exchange of special services ; but the principle of 
 exchange is that of general compensation (generelle Ent- 
 geltlichkeit), no separate reckoning being made with indi- 
 viduals concerning the advantages they receive from the 
 state." 3 
 
 But neither Wagner nor Stein makes use of his productive 
 theory to furnish a basis or principles of taxation ; further, 
 at least, than to show that the taxes must be adequate to the 
 needs of the state, and the services of the state equal to the 
 taxes, else production must be hampered or cease entirely. 
 Or, as is implied in the view-point of Stein, taxes must be 
 sufficient to enable the state to attain its highest efificiency 
 in maintaining the conditions of production, of capital build- 
 ing, but never in excess of the value of the services of the 
 state in capital building. That is, they must be high enough 
 to maintain that degree of efficiency on the part of the state 
 that will ensure their reproduction in capital, else capital 
 building must cease, and thus the source of the tax is anni- 
 hilated, and with it also the state itself.* But with Wagner 
 the productive theory lies wholly outside of the principles of 
 
 * Op. cit., p. 92. • op. «■/., i, p. 523. * Ibid., i, p. 14. 
 
 * Cf. Stein, op, cit., ii, p. 359. 
 
473] ECONOMIC BASIS AND PRINCIPLES 137 
 
 private economy, his conception of the functions of govern- 
 ment and of a "general compensation," without individual 
 reckoning paving the way to his social-political conceptions, 
 in which he finds both the basis and the principles of taxa- 
 tion. 
 
 That, however, there is much truth in the productive 
 theory of the state and taxation, that the state is a conditio 
 sine qua non of production, is not to be doubted. But just 
 because it is this, because it is a condition precedent, it is 
 not a directly active force in production. A condition of 
 production, it is true ; but it does not for that reason per- 
 form any measurable economic service in production. This 
 Wagner admits.' Then, too, there is much expenditure by 
 the government that by no conceivable hypothesis could be 
 regarded as productive, as the term is understood by either 
 Wagner or Stein.^ Moreover, this conception of the eco- 
 nomic relations involved is too restricted in its scope to 
 furnish a basis and principles for taxation, as it includes but 
 a small part of even the relations that are involved in the 
 economic life, to say nothing of the wide field of " services," 
 other than in the strictly economic sphere, for which com- 
 pensation must be made, or rather must be maintained. 
 
 These facts go to show that while the productive theory 
 undoubtedly represents an important phase of the economic 
 relations between the state and individuals, it is not a phase 
 that can furnish a basis and principles of taxation. And it 
 is to the credit of both Wagner and Stein that they made no 
 such attempt, and that least of all did they conceive this 
 relation to be the only relation that determines principles of 
 taxation ; that is, did not conceive taxation as a purely 
 economic problem. 
 
 ' "Aber schwierig ist sogar die technische und vollends die okonomische Produc- 
 tivitat der einzelnen Staatsthatigkeiten zu beurtheilen." Wagner, op. cit., i, p. 13. 
 
 ' Cf. Sax, op. cit., p. 98. 
 
138 JUSTICE IN TAXATION [474 
 
 IV. The Utility Theory of Sax. 
 
 Although the theories just discussed are based upon the 
 conception of an economic relation between the individual 
 and the state, they do not attempt (with partial exceptions 
 of the "exchange" and "single tax" theories) to place 
 taxation upon a purely economic basis, or to determine its 
 principles by purely economic laws. It is, on the contrary, 
 the boast of Sax that the problems of taxation are to be solved 
 simply and solely by the application of economic principles 
 and laws. The fundamental thought, as we have seen, is, that 
 the collective wants of a people — wants satisfied by the 
 agency of government — resolve themselves into individual 
 wants in such a manner that they constitute a part in the 
 totality of indvidual wants, being distributed indiscriminately 
 in the circle (Reihe) of wants according to their intensity; 
 and that all wants, collective and private without distinction, 
 are satisfied in the order of their intensity, the final test 
 always being the marginal utiUty of goods relative to the 
 wants satisfied by them.' Collective and private wants are 
 upon precisely the same plane, and in a conflict between 
 them it is the relative intensity of wants that decides the 
 competing claims. Precisely in one case as in the other, in 
 taxation as in economics, it is a question of the intensity of 
 wants on the one side, and of the marginal utility of goods 
 on the other — the utility itself being determined by the 
 psychological law of " greatest satisfaction with the least pos- 
 sible sacrifice," or efTort. In brief, laws of subjective value, 
 themselves rooted in sensation, are the alpha and omega of 
 problems of taxation, as, indeed, of all financial problems.' 
 
 Not only have we here an economic basis and an eco- 
 nomic principle, but we have in them the fundamental basis 
 and principle of taxation. Economic laws become the in- 
 
 » See Sax, op. cit., § 31. * Cf. iHd., § 52. 
 
475] ECONOMIC BASIS AND PRINCIPLES 139 
 
 terpreter of both the poHtical and ethical side of taxation. 
 Indeed, according to Sax, taxation is not an ethical problem, 
 the principles of taxation having nothing to do with ethical 
 considerations. The problem is one of economics, and only 
 by a strict adherence to economic laws is justice in taxation 
 possible. The ethics of taxation is simply the inevitable 
 consequences of the economics of taxation.' 
 
 That this theory, thus briefly and inadequately stated, 
 contains the simplicity that is claimed for it cannot be denied. 
 But to Sax this simplicity is a guarantee of its truth (eine 
 Burgschaft ihrer Richtigkeit). Indeed, the simple law of 
 value, the solvent of every financial, as of every economic 
 problem, is comparable in its importance to the law of grav- 
 itation.^ This simple law, so it is exultingly and triumph- 
 antly claimed, is the " light which, like the electric flames of 
 the sun, clears up, all at once, the hitherto dark, confused 
 province (of taxation)." 3 We are told, too, and repeatedly 
 with much apparent self-satisfaction, that in this law the dif- 
 ficult problems of taxation for the first time find a solution ; 
 and for the first time a definite meaning is given to the idea of 
 justice in taxation. The law, in short, explains everything 
 — benefits, exchange, sacrifice, ability, justice, etc., etc.* 
 
 In this estimate of the merits of the theory, and in the 
 axiomatic character of the proof of its validity. Sax has sup- 
 port in the able Italian economist Ricca-Salerno. With 
 such able defenders it is with not a little diffidence that we 
 venture to question some of the pretensions of this theory 
 and to offer some criticisms upon it, at the same time 
 acknowledging its many merits. Because of the exalted 
 claims for this theory, and in form, at least, its comparative 
 newness, we may be justified in giving to it a somewhat 
 
 1 Cf. Sax, op. cit., p. 524, and Die Prcgressivsteuer, p. 89. 
 
 » Grundlegung, p. 308. ' ^Hd., p. 444- 
 
 * Cf., Die Progressivsteutr, p. 90. 
 
I40 JUSTICE IN TAXATION [476 
 
 more extended consideration than we have given to any oi 
 the preceding theories discussed. 
 
 I. Its Originality. Reflection must, I think, convince us 
 that, with all of its claims, the theory of Sax does not differ 
 in essence from some of the older theories that it so vigor- 
 ously combats. It differs from these only as the utilitarian 
 theory of value dififers from that of the classical economists 
 — in being more fundamental in its analysis. True, this 
 difiference is important, and to Sax all-important. Like 
 them all, the theory of Sax, from one point of view, is a 
 theory of benefits, of exchange. But while they emphasize 
 the objective side of the exchange. Sax emphasizes the sub- 
 jective character of the exchange. Or if Adam Smith em- 
 phasizes the "protective service" of the exchange, Bastiat 
 and Perry the fact of the exchange, Thiers the element of 
 insurance, George the service of the government in creating 
 " land values," Wagner and Stein the productive service of 
 the government, Sax emphasizes the subjective motives that 
 determine the character and amount of the exchange — the 
 ultimate fact of the exchange. 
 
 In another respect, also, there is an important difiference. 
 For, whereas, in the other theories the " exchange " sug- 
 gests the idea of the state standing over against the 
 individual as a separate entity, as an independent party to 
 the contract, the theory of Sax more correctly regards the 
 whole phenomenon as proceeding from the individual, and 
 determined by the individual; collective life and collective 
 economy being but a separate phase of individual life and 
 individual economy.' 
 
 But notwithstanding these and other dififerences, the basic 
 idea of the tax and of tax principles is essentially the same 
 with Sax as with his predecessors. As previously pointed 
 out,'' the practical rule that Sax deduces from his theory is 
 
 » Cf., § 31. * Ante, p. 92. 
 
477] ECONOMIC BASIS AND PRINCIPLES 141 
 
 the same as that previously expressed by Mill, as the result 
 of his theory of "equal sacrifice," which itself may be con- 
 sidered as the subjective side of the theory of benefits and of 
 exchange. At best the " equivalence'' theory of Sax differs 
 from the " equal sacrifice " theory of Mill only in giving an 
 ultimate and more definite measure of the sacrifice, and we 
 may add, too, of "benefits" and "exchanges." This ulti- 
 mate measure he finds in the " marginal utility " of goods, 
 applying to finance the economic " utility theory " of value. 
 
 But Sax is not, as he would have us suppose, the first 
 economist to make this application. As pointed out by 
 Professor Seligman, " the formulation of the whole doctrine 
 had been developed by Meyer without any suspicion on his 
 part that he had thereby made any specially new dis- 
 covery."' One emphasizes the marginal want satisfied be- 
 cause of the tax, and the other the marginal want unsatisfied ; 
 a distinction without a difference. But the honor of first 
 applying the utility theory of value to finance is credited by 
 Mazzola to the Italian economist Pantaleoni." 
 
 2. Simplicity and Truth. There is, indeed, a fascination 
 in simplicity. But we ask : Is simplicity a guarantee of 
 truth? And is the theory of Sax as simple as it seems? 
 
 It is no doubt true that only as we discover unity in social 
 as in natural phenomena, do we get an interest in them (as 
 distinct from a curiosity), because only then are we able to 
 comprehend them in all of their relations, only then intelli- 
 gently understand them. Such a unifying principle we have 
 in the idea of utility, and this principle bids fair to become 
 still more important in the future than it has been in the 
 past; both in the interpretation of the philosophy of history, 
 and in the evolution of political, social and economic insti- 
 tutions.3 But in the application of this principle to such a 
 
 ' Progressive Taxation, p. 148. * See ante, p. 53, note, 
 
 ' This was emphasized by Prof. Giddings in his lectures on Sociology at Colum- 
 bia University, in 1890-91. 
 
142 JUSTICE IN TAXATION [478 
 
 wide range of phenomena we must observe caution lest we 
 push it too far, and neglect counteracting or modifying 
 forces. We must beware of deceptive analogies. These cau- 
 tions are particularly pertinent when we attempt to employ 
 sensuous phenomena in the explanation and interpretation 
 of distinctively spiritual activities and relations — the ac- 
 tivities and relations of spiritual beings. For example, in 
 applying the principle of utility to moral agents it is indis- 
 pensable to truth that we take account of the distinctive 
 characteristics and attributes of mind, over and above the 
 sensuous pleasures and pains. 
 
 No better example can be given of the attempt to use one 
 common, all-embracing principle to explain and to interpret 
 all phenomena, to give unity to all knowledge, of the animal 
 and human worlds, of the physical and the mental, of the 
 individual and the social — than is to be found in Herbert 
 Spencer's system of philosophy ; but the simplicity of his 
 principle does not prove the truth of his philosophy, and 
 still less the truth of his special applications of his principle. 
 There is, indeed, a unity in truth, but it is a unity in com- 
 plexity ; there is not always a truth in unity. In our search 
 for knowledge we are too apt to be led astray by those Idols 
 of the Tribe against which Bacon warned us, and our search 
 for truth descends into a search for simplicity. 
 
 Now it is my contention, further, that the principle by 
 which Sax seeks to interpret the phenomena of taxation is 
 more complex than he imagines, at least more complex in 
 its application. True, there is, and must be, an underlying 
 unity in individual and social phenomena, since social life is, 
 in a sense, but the larger self of the individual. But just 
 because society is the " larger self," the common principle, 
 when applied to it, takes on a complexity that does not exist 
 when confined to the individual as such. It is operating 
 under different circumstances and conditions in the two 
 
479] ECONOMIC BASIS AND PRINCIPLES 143 
 
 cases, and, therefore, in its application these circumstances 
 and conditions must be duly considered. Hence it is quite 
 possible for the conclusions in one case to be quite different 
 from those in the other. Only by neglecting important 
 factors, and by the use of the specious argument of analogy 
 can we conclude from the one to the other. 
 
 The fact is, that Sax is able to conceive of the simplicity 
 of his principle only by abstracting from it some of its most 
 important elements, only by considering it from the view- 
 point of "pure economics," abstracted from all ethical con- 
 siderations. But no such abstraction can be allowed ; for 
 wherever human relations are involved there are also in- 
 volved ethical considerations. Human connotes ethical, and 
 so likewise the problem of equality of taxation, as Professor 
 Seligman observes, "connotes an ethical problem."' The 
 problem of taxation can not, therefore, be reduced to a sim- 
 ple problem of pure, that is, of abstract, economics. But the 
 *' simplicity " of the theory of Sax is only the simpHcity of 
 abstract economics, therefore a seeming simplicity only. 
 These criticisms will become more apparent as we proceed. 
 
 3, Individual and Collective Psychology. — The theory of 
 Sax, like the utility theory of value upon which it rests, has 
 its foundation in what we may call a psychology of motived 
 action. It is, moreover, one of the fundamental assump- 
 tions of Sax that collective psychology is the same as indi- 
 vidual psychology ; that, in other words, " collective " activity 
 for the satisfaction of common wants is directed in precisely 
 the same way as individual activity in the satisfaction of 
 private wants ; that is, by the intensity of the want to be 
 satisfied, or by the egoistic impulse to get the greatest pos- 
 sible enjoyment in the satisfaction of wants with the least 
 possible sacrifice to the self. But here, again — in concluding 
 irom individual to collective psychology — there is need of 
 
 ' Progressive Taxation, p, 149. 
 
144 JUSTICE IN TAXATION [480 
 
 the greatest caution. Similarities and analogies will not 
 suffice. 
 
 It is true, as Sax very correctly shows, that " collec- 
 tive needs " do not pertain to the Collectivity — the state — 
 as an independent entity, but are ultimately resolvable into 
 the needs of the individuals that constitute that Collectivity, 
 and true, therefore, that in the satisfaction of these needs 
 individual psychical relations and activities are involved. 
 But more than this fact is necessary to prove a psychical 
 identity in the two cases. The psychical activity of the indi- 
 vidual may be the same when he is acting for himself or the 
 collective whole, but the condition, motives or impulses that 
 determine the activity may not be, and we contend are not, 
 necessarily the same. The highest good for the Collectivity 
 may not be the highest good for the individual. It is in the 
 neglect of these dissimilarities that Sax, to my mind, makes 
 his greatest mistake. The Idols of the Tribe prove false 
 guides. 
 
 What the psychological differences are will appear pres- 
 ently, but that they are important to the question at issue 
 cannot be doubted. For the point at issue is whether the 
 principles underlying utilitarian economics are so far appli- 
 cable to public economy as to be able to furnish an all-suffi- 
 cient basis, as also principles of taxation, solving the prob- 
 lems of equality, exemptions, proportions, etc., apart from 
 any ethical considerations. Hence, it is important to ascer- 
 tain how far the primary assumption, that individual and col- 
 lective satisfaction of needs obey the same law, is true. The 
 question may be considered subjectively, or psychologically, 
 and objectively, or empirically. At present we are con- 
 cerned with the psychological question : Whether the psy- 
 chology of the individual, qtia individual, is the same as that 
 of the individual as participating in the Collectivity — is the 
 same, that is, as collective psychology. We may note the 
 
48 1 ] ECONOMIC BASIS AND PRINCIPLES 145 
 
 difference by first calling attention to certain facts of indi- 
 vidual, then of collective psychology. 
 
 ( I ) Individual Psychology; or the Psychology of Individual 
 Satisfaction of Needs. — In the first place, individual psychol- 
 ogy has to do with sentient, self-conscious, self-determined 
 organisms; that is, with persons whose peculiar nature it is 
 to have " ideals, feelings and sensations " ' that pertain to 
 them as individuals, and others that pertain to them as social 
 beings, that is, spring from their membership in political 
 society. The former (we confine ourselves to the economic) 
 are induced by a conception of certain psychical states, cer- 
 tain conceptions of the self, that the individual desires to 
 attain for himself, while they involve the relation of external 
 objects to the sentient self. By changing the objective rela- 
 tions he changes the subjective state of feelings and sensa- 
 tions — satisfies his needs, his ideals. By controlling the 
 former, therefore, he controls his own psychical states, his 
 own satisfactions. Ideas, feelings and sensations that a given 
 order of things may induce are compared with the ideals, 
 feelings and sensations that another possible order may 
 induce, and the individual decides for himself (conditioned 
 by external limitations) which order of things shall prevail 
 by deciding which order will give him the greatest satisfac- 
 tion on the whole, thereby satisfying his highest need as he 
 sees it for the time being. For example, he may decide to 
 exchange a given sum of money for the necessities of life, or 
 for a work of art, thus effecting a subjective satisfaction in 
 accordance with an ideal that he has formed of himself, an 
 ideal that is peculiar to his own psychical nature. 
 
 Again, it may be noted that private economic needs are 
 subjectively ideas, feelings and sensations that pertain to and 
 are felt directly by the individual, but objectively they per- 
 tain to " goods " by which the needs are satisfied, the goods 
 
 * Cf. Sax, Grundlejptng, p. 5 74. 
 
146 JUSTICE IN TAXATION [482 
 
 themselves belonging to and being under the control of the 
 same individual. By a subjective comparison of needs, as 
 actually and as ideally satisfied by the goods in question, the 
 subjective value, or marginal utility, of the goods is ascer- 
 tained, relative to the intensity of feeling of the needs com- 
 pared ; and hence, again, since the goods are under the con- 
 trol of the individual, he may satisfy his needs in the order 
 of their intensity so far as he is in possession of the neces- 
 sary economic goods. 
 
 Expenditure of goods — satisfaction of needs — will, of 
 course, be influenced by habits, by the circumstances of 
 social and industrial conditions; but intensity of individual 
 feehng, relative to the ideal the individual has of himself, 
 will determine the order of the satisfaction of needs whatever 
 the conditions; but because of the consumer's rent,' or sur- 
 plus, there is not necessarily an equality between the objec- 
 tive value of the goods, the price the consumer must pay, 
 and their subjective utility for the satisfaction of needs, or 
 the price which he would be willing to pay. Or, rather, be- 
 cause there is not an equality between the objective value 
 and the subjective utility of goods, there arises a consumer's 
 surplus. Or, more correct still, a consumer's surplus arises 
 because the marginal utility of goods to the consumer, 
 measured by the sacrifice which he is willing to undergo in 
 order to obtain them, is greater than their " social marginal 
 utility," as Professor Seligman very aptly puts it, or " the 
 sacrifice which the members of society as a whole are willing 
 to make." ^ 
 
 (2) Collective Psychology; or the Psychology of the In- 
 dividual in Collective Life. Thus far students of psychol- 
 ogy have given but slight attention to the psychology of 
 
 ^See Marshall, /^rf«ir///?j, p. 181. 
 
 •Seligman, "Social Elements in the Theory of Value," in Quart, Journ. of 
 Econ., vol. XV, p. 332. 
 
483] ECONOMIC BASIS AND PRINCIPLES 147 
 
 collective life, and we have not, therefore, a systematized 
 knowledge concerning it. As I do not pretend to be a 
 psychologist I shall not presume to elaborate such a the- 
 ory. Nevertheless, I believe that a little reflection must 
 convince us that "ideals, feelings and sensations" have 
 quite a different significance according as they have refer- 
 ence to the individual, qua individual, or to the individual in 
 his social activities — to the satisfaction of private, or to the 
 satisfaction of collective wants. 
 
 That the psychical phenomena in both cases centre in the 
 individual there can be no doubt, for there is no psychical 
 "collective entity" in which psychical phenomena may 
 centre. Nevertheless, the two classes of phenomena have 
 distinctive characters. The " ideals, feelings and sensa- 
 tions " that actuate the individual, qiia individual, may lead 
 to a quite different course of conduct from that to which 
 they would direct if they actuated the individual as repre- 
 sentative of the " collective whole." It is nothing to our 
 purpose that there is no psychology of the individual worth 
 speaking of, except of the individual participating in social 
 life. The point is that he is actuated differently when act- 
 ing for himself and when acting for the " whole," because 
 actuated by a dififerent conception of the " good," in the one 
 case a good for the self, in the other a good for the whole— 
 a "personal" good and a "common" good. And it is the 
 conception of the " good " that is the fact of importance. 
 Intensity of feeling may be the immediately controlling 
 force in both cases, but it is the conception of the " good" 
 that one forms for himself that determines the direction of that 
 intensity. Sax may find in intensity of feeling — in sensation — 
 a tertium coniparatio7iis to explain demand and supply, 
 sacrifice, difTerences in needs, etc.,' but he fails to see that 
 there is a still more fundamental tertimn comparationis that 
 
 ' Cf. Sax, Grundle^ung, p. 176. 
 
148 JUSTICE IN TAXATION [484 
 
 explains and interprets the intensity of the sensation, to 
 wit. : the conception of the ideal that one sets for himself to 
 attain. 
 
 From these facts it would seem clear that " ideals, feelings 
 and sensations " partake of a dififerent character according 
 as they are concerned with the satisfaction of private, or of 
 collective, wants ; that, therefore, we cannot safely conclude 
 from rules of private satisfaction to rules of collective satis- 
 faction ; that the fact that intensity of desire is an imme- 
 diately controlling force in both cases is not, as previously 
 pointed out, a sufficient fact for comparison. In fact, it is 
 only as the individual in acting for the whole differentiates 
 his motives and actions from what they would be if he were 
 acting for himself alone ; only, that is, as he dififerentiates 
 his conception of the good of the whole from his conception 
 of the good for self, is his action likely to be directed to the 
 attainment of the " common good." On the other hand, so 
 far as the individual in his capacity of acting for the whole 
 is dominated by the impulse that would guide him if acting 
 for himself, irrespective of others ; so far, that is, as he is 
 guided by a conception of his own *' personal good," and 
 not by a conception of the " common good," the tendency 
 of his action will be to thwart the attainment of the " com- 
 mon good." This latter case is well illustrated by the 
 " professional " ofhce seeker, with whom the interest of self 
 dominates his every action, and who thereby, paradoxical as 
 it may seem, assumes a dififerent character, a different per- 
 sonality, when acting in the two capacities ' — for the self and 
 for the whole ; for when acting for the whole he does not 
 make its good his good as he would if the whole were him- 
 self. He rather assumes that he is the whole. 
 
 • There is, indeed, much apparent truth in the semi-serious suggestion of Prof. 
 Giddings, that the " politician" at least, has a double consciousness, a dual per- 
 sonality, assuming one in his private capacity and another in his public capacity. 
 Notes from lectures on Sociology, Columbia, 1890. 
 
485] ECONOMIC BASIS AND PRINCIPLES 149 
 
 From the above considerations, inadequate as they are, it 
 is apparent that private and collective needs are distinct in 
 their character, their point of view, their aims, and may be 
 in their subjective results. Private needs are felt by the 
 sentient self to whom they belong, their interest is solely for 
 the self, they are directed by the self for its own " good," 
 and are measurable by the self by comparison with felt 
 needs. Collective needs, on the contrary, are conceived by 
 individuals, but as belonging to the whole; are indirectly 
 controlled and satisfied by representative agents, pertain not 
 to the individual, but to the common good, and are only re- 
 motely capable of measurement by comparison, if, indeed, 
 they are not immeasurable. The former are felt ; the 
 latter, as Mazzola ' points out, are distinctively " reflexive 
 needs," needs related to thought rather than to feeling. 
 
 4. Collective Needs Empirically Considered. — That the 
 satisfaction of collective needs is not wholly determined by 
 the same rule, or law, that determines the satisfaction of 
 private needs will appear still more evident by a few practi- 
 cal observations of objective facts ; facts, however, that are 
 determined by and are illustrative of the psychological differ- 
 ences already mentioned. We need to note only differences 
 in the character of the problems of satisfactions, and the 
 political facts relative to collective satisfactions. 
 
 (i) Differences in Character. — It is, as we have seen, one 
 of the errors of Sax that his economic theory is too abstract; 
 that he assumes economic action to be determined solely by 
 the intensity of economic want, whereas there are many in- 
 fluences that go to shape economic action, as ethical, social, 
 
 ' Mazzola, op. cit., p. 73. While Mazzola makes some good criticisms of the 
 theory of Sax, he seems, on the whole, to accept the theory; but thinks that the 
 highest utility of the tax can be determined only by differential calculus, since 
 there are various factors involved in the problem, and not one factor, as Sax 
 assumes. This, he says, " is the limit to which financial economy can go," p. 149. 
 
I50 JUSTICE IN TAXATION [486 
 
 etc' The error is aggravated when economic law is applied 
 to financial problems, such as taxation, since here these 
 modifying influences become of even greater importance. 
 With this correction there is, under ideal conditions, a degree 
 of similarity between the satisfaction of private and public 
 needs, between private and public economy. Still, even 
 then, we are compelled to assume that the individual in his 
 public capacity seeks to change the objective relations of 
 things with respect to an ideal standard for the whole body 
 politic; just as the individual seeks to change the relations 
 of things with respect to an ideal standard of objective rela- 
 tions that he forms for himself. But these conditions are 
 ideal and imply ideal conditions of human nature. They are 
 yet far from attainment. 
 
 But even if the ideal conditions prevailed there would yet 
 be an important difference ; for although ethical relations 
 are involved in both cases, they are or should be the deter- 
 mining force in all action directed towards public ends, since 
 every public act, particularly in matters of taxation, involves 
 the rights and duties of every member of the state in a 
 manner that is out of all proportion to that of private 
 economic action. If this were not so a government might 
 well adopt the advice of McCulloch and let expediency 
 determine its tax system.* Then, too, the fact that action in 
 the one case is directed with reference to self, and in the 
 other case with reference to others, puts a wide chasm be- 
 tween them. Intensity of feeling may control both sets of 
 actions, but not all public action is controlled by the need 
 most felt by the public, because the individual in his capacity 
 
 'See last note, and Zorli, Za Scienza dei Tributi,^, 17, where he mentions 
 cosmological, anthropological and sociological elements. Cf,, also, Cohn, Science 
 of Finance, sec. 195. 
 
 ' See Taxation and Funding, p. 161. Cf., also, Held, Einkommensteuer, p. 
 115, and Newcomb, Political Economy, p. 493. Newcomb relies upon shifting of 
 of taxes to effect justice in the long run. 
 
487] ECONOMIC BASIS AND PRINCIPLES 151 
 
 as a public agent is too often actuated by motives that are 
 relative to purely private ends. These facts may be illus- 
 trated by the political factors in the problem. 
 
 (2) Political Factors. According to Sax the method by 
 which we satisfy our collective wants, by the same rule that 
 we satisfy our private wants, is through the agency of repre- 
 sentative government by means of our vote. (He does not 
 pretend that his theory applies to any other form of govern- 
 ment.) But is this anything more than a pleasing fancy? 
 True, we voluntarily consent to be taxed — to make expendi- 
 tures for our " collective " needs ; but the tax is pre- 
 eminently compulsory and must be paid whether we, as 
 individuals, will or no. Nor does our consent carry with it 
 the amount of the tax nor the purposes for which it will be 
 used. It is true that we consent to leave this to the dis- 
 cretion of our representatives, but their judgment is not 
 necessarily our judgment, for they are more inclined to be 
 dominated by their needs than by our needs,' and their 
 needs take on a new form and variety as they become public 
 agents. 
 
 Without doubt, much of the public expenditure is in the 
 interest of the common good, but there is no less doubt that 
 no inconsiderable part of it is spent to satisfy the private 
 needs of our " representatives," rather than the common 
 needs. Legislators will vote for expenditures that they 
 know will enrich themselves, their friends, or their con- 
 stituents, well aware that its ultimate utility to them will far 
 exceed their share in the burden of the tax, while for the 
 
 ' " Sax's error, when considering the cause that determines taxes, is in giving 
 excessive importance to the needs of those who pay them and too little to the 
 needs of those who make them pay." Zorli, op. cit., p. 55. This little book con- 
 tains a very good criticism of the theory of Sax. The spirit of the criticism is verf 
 similar to that which will be found in the text. As our own criticisms were made 
 before we knew of the work of Zorli, we have not made as many references to it 
 as we should otherwise have done. 
 
152 JUSTICE IN TAXATION [488 
 
 great mass of the taxpayers there would be far greater 
 utility in private expenditure. The public good is made to 
 give way to the selfish interest of the individual or a class.* 
 Surely there is little here that is common between private 
 and public economy ! 
 
 But says Sax,'' this state of things cannot always endure, 
 for in the course of time — it may, indeed, be a generation 
 or more — the wrongs will be righted, if needs be by revolu- 
 tion. Indeed, a whole generation or more pilfered, deprived 
 of the fullest satfsfaction of both their collective and their 
 private needs, and the wrong to be righted, adjustment of 
 expenditures in accordance with needs to be re-established 
 only by some future generation, perchance at the expense 
 of a costly and bloody war, perchance, too, with a repetition 
 of the same order of events ! And this is satisfying our 
 collective needs on the same principle that we satisfy our 
 private needs ! Could the infatuation for a theory go 
 further? 
 
 But apart from all corruption, the individual has a very in- 
 direct and very inadequate control over the public expendi- 
 tures for collective needs. In the first place a majority vote 
 in the legislature may represent a minority of the voters.3 
 Then, again, it is seldom that the policy of expenditures or 
 taxes is submitted to the voters before the majority in the 
 government have entered upon it, and which, perhaps, as in 
 
 ^ Note, for example, our corrupt city governments. It is, however, not con- 
 fined to them. Speaking of Italy, Pareto writes : " Up to the present time the 
 governing class has not opposed the increase of expenditures, because they have 
 the means of enriching themselves, and at the same time satisfying their vanity. 
 If they had to pay for this indulgence they would be inclined to renounce it. This, 
 contingency, however, seems far off. The example of Spain and Portugal shows 
 that a Latin country may approach the verge of ruin before the governing class 
 renounces the policy which has brought it there." ^ "Parliamentary Government 
 in Italy." Folit. Sci. Quart., vol. viii, p. 717. 
 
 ' Grundlegung, pp. 517 and 522. 
 
 ' Note also approvals and vetoes by presidents elected by a minority vote. 
 
489] ECONOMIC BASIS AND PRINCIPLES 153 
 
 the case of war, is practically irrevocable. The subsequent 
 " approval " at the polls may mean but little, since the appeal 
 " to support the party " has a stronger influence upon the 
 voters than the real merits of the tax or the expenditure. 
 
 Nor do we find it at all more satisfactory if we turn from 
 the " representatives " to the voters, as is illustrated by the 
 almost universal tendency, if not to evade taxation, to escape 
 a just proportion of its burden. Says Pareto, in the article 
 referred to above : " The landed proprietors are powerful 
 to resist any increase of taxation upon their property ; they 
 have even been able to get the land tax reduced two-tenths, 
 and this at the very time when the expenses of the state 
 were increasing in an extraordinary degree and taxes on 
 consumption were being increased in consequence." ' Nor is 
 this condition exceptional with Italy. Satisfying our col- 
 lective needs at the expense of others by evasion of taxes 
 is by no means uncommon. 
 
 Thus, from whatever point of view we consider the ques- 
 tion, we cannot find that Sax and his disciple, Ricca-Salerno, 
 find much proof for their theory in representative govern- 
 ment.' The prevalence and power of an egoism of the indi- 
 vidual, or of a class, in a representative government prevails 
 against the practical application of the theory only in less 
 degree than it does in a despotism, where the theory is not 
 assumed to apply. But Sax evidently shares in the sanguine 
 expectations of Pantaleoni — that eventually all lower forms of 
 egoism will give way to the " egoism of the species " ^ to an 
 altruism that for rulers as well as for the ruled enforces the 
 sacrifice of self to promote the general happiness. 
 
 That such a condition does not yet prevail ; that public 
 assessments and disbursements are not yet wholly determined 
 on the same principles as private economy ; that there is a 
 
 1 Op. cit. 717. * Cy:Zorli; op. cii., p. 62. 
 
 » Quoted by Nitti in La Scuola Positiva, Sept, 189 1, p. 491. 
 
154 JUSTICE IN TAXATION [490 
 
 discrepancy between the theory and practice, Sax virtually 
 admits. But, so it is argued, any unjust distribution of the 
 tax is not the fault of the theory. It is due rather " to 
 error or to ignorance of actual circumstances ; but more 
 still to the class egoism of the ruling element of the people 
 which seeks to throw the tax burden as much as possible 
 (uberwiegend) upon the governed." ' Yet this condition can 
 not long endure, since such a government would be event- 
 ually overthrown by the votes or by the guns of the people. 
 
 But this admission, I maintain, is not to be so easily 
 reconciled with the contention that in the economic actions 
 pertaining to the fulfilment of the ends of collective life, 
 " men are guided by the same psychical acts, ideas and 
 sensations which a comprehensive analysis shows to be the 
 guiding elements of all economic action, but which until 
 now [z. (?., until this great discovery brought truth to light] 
 was able to explain only individual economy." ^ The fact 
 is, that there has not been sufficient discrimination between 
 " the psychical acts, ideas and sensations " as such, and the 
 difference of circumstances and conditions under which they 
 are produced ; or between them and the standard, or ideal, 
 in accordance with which they are interpreted — between 
 the conception for self, and the conception for others. 
 Hence the error in the analogy that forms the basis of the 
 theory. 
 
 Upon the whole, then, we cannot think that Sax has 
 added anything of great importance to an economic basis 
 and economic principles of taxation. We would summarize 
 as its more important defects : that it is a pure abstraction ; 
 that it errs in its analogies and in its theory of their realiza- 
 tion ; that its validity, at best, rests upon ideal conditions 
 that nowhere exist, and that, therefore, it is wrongly assumed 
 that ethical principles will be realized through the working 
 
 ^ GrundUgung, p. 521. • Ibid., p. 574. 
 
49 1 ] ECONOMIC BASIS AND PRINCIPLES 155 
 
 of economic law — the law of " greatest intensity," or mar- 
 ginal utility. But after all, the " equivalence " of intensities 
 of needs sacrificed because of the tax, which to Sax is " the 
 whole problem of tax distribution in a nutshell," ' is, as we 
 have seen, only a special phase of the sacrifice theory. 
 But " equality of sacrifice " is fundamentally an ethical 
 principle. 
 
 IV. Conclusion as to True Economic Basis and 
 
 Principles 
 
 From the preceding review of economic bases and princi- 
 ples of taxation we are forced to conclude, for reasons 
 given : that an economic basis and principles do not stand 
 apart, but are closely correlated with a political and an 
 ethical basis and principles ; that neither the idea of " pro- 
 tection," of " service," nor of " exchange" forms a competent 
 basis for economic principles of taxation, because, among 
 other reasons, the econgmic basis must be in perfect har- 
 mony with the political basis — with the relations between 
 the individuals and the state — and this basis is not properly 
 expressed by these conceptions, because they do not prop- 
 erly express the true nature of the state. Moreover, we 
 have seen that these ideas have no practical significance, 
 since neither the "protection" nor the "service" exchanged, 
 has any assignable economic value such as the theory 
 implies. 
 
 And yet there must be an economic basis from which 
 economic principles may be drawn, and this basis must have 
 definite reference to the relation between the individual and 
 the state ; more specially to the economic relation. Ac- 
 cording, then, to our conception of this relation — of the 
 nature of the state — the real economic basis of the tax is the 
 collective needs that result from the political organization of 
 
 * Die Progressivsteuer, p. 90. 
 
156 JUSTICE IN TAXATION [492 
 
 society — the state ; the necessity for the tax being due to 
 the regime of private property. But private property must 
 also provide for the satisfaction of private economic needs, 
 and, therefore, the real economic problem of taxation is to 
 satisfy the collective needs in a manner proportionate to the 
 satisfaction of private needs ; or so to distribute private 
 property — really the income from it — between the satisfac- 
 tion of private and collective needs as to produce the high- 
 est economic efficiency, the highest economic development, 
 and the most complete satisfaction of needs. The point of 
 view is that of the individual, and the real question is one of 
 the distribution of his income between the satisfaction of his 
 private and his collective needs. But since the collective 
 needs must be satisfied through agents, there is a seeming 
 opposition of interests, which, as Schafitle says, occasions a 
 perpetual strife.' This conflict will never wholly cease, but 
 with a due regard of economic principles by the agents of 
 the state it may be greatly alleviated. 
 
 What, then, are the economic principles that should guide 
 the agents of the state in matters of taxation? Briefly, the 
 primary principle is precisely that of the problem just 
 stated : That individual income should be so distributed be- 
 tween private expenses and taxes — between the satisfaction 
 of private and collective needs — that both the highest effi- 
 ciency of the state and the highest efficiency and develop- 
 ment of the individual will be thereby attained. In the 
 words of Stein : 
 
 "The ruling principle of Finance is that, in covering the needs of 
 
 the State, a due proportion be maintained as compared with the 
 
 proportionate covering of those needs not represented by the State. 
 
 . . . Neither pubHc nor private economy presents, of itself, a final 
 
 ^ "Er ist Befreiungs-und Freihaltungskampf auf Seite der Steuertrager dem Staate 
 gegenliber." Grundsdize der Steuerpolitik, p. 164. Cf. also, Cohn, Science of Fi- 
 nance, sec. 208. 
 
493] ECONOMIC BASIS AND PRINCIPLES 157 
 
 end. To pamper the one and starve the other, to over-nourish the 
 one and stunt the other, appears, upon its face, without warrant, 
 since an effective State and a strong people are ahke essential ele- 
 ments in national life. Both public and private needs are integral 
 parts of a common necessity, and the one as well as the other must 
 finally be determined according to their relative importance for the 
 maintenance and development of society as a whole. ... To pro- 
 vide for the public necessities as well as for private wants, in the 
 ratio of their importance, is the manifest, self-apparent demand 
 which the theory of finance that holds itself within the circle of 
 economic vision asserts as its own, and which may be successfully 
 opposed to the parsimonious citizens as well as to the spendthrift 
 State." ^ 
 
 It is admitted that this economic principle is very general 
 in character, but it is sufficiently objective and definite to be 
 capable of practical application ; yet the extent of its prac- 
 tical realization will depend upon the extent that conscien- 
 tious and enlightened statesmen hold the reins of govern- 
 ment — ultimately upon the moral status of the community. 
 But this principle obtains definiteness by the corollaries, or 
 secondary principles, that flow from it, and through whose 
 application alone the primary principle obtains practical 
 significance. The secondary principles relate to the econ- 
 omic effects of the tax upon the individual and thereby 
 upon the sources of the national income, and involve such 
 questions as those touched upon in chapter II. For without 
 a careful observation of the effects of a tax a due distribu- 
 tion of income between private and collective needs cannot 
 be effected. 
 
 It may be noted in conclusion, that " Equality of sacrifice," 
 or " Equivalence," cannot be the economic principle, since 
 
 ' Quoted by Adams, Public Finance, p. 28. " Oberstes Princip der Finanz- 
 wissenschaft ist die wirthschaftlich yerhaltnissmassige Deckung des Staatsbedarfs 
 gegeniiber einer nicht minder verhaltnissmassigen Deckung aller nicht-staatlicben 
 Bedarfe." Schafflc, Grundsatze der Steuerpolitik, p. 17. Cf. also, Held, op. cit.^ 
 p. I06. 
 
158 JUSTICE IN TAXATION [494 
 
 these involve comparison with others and have, therefore, an 
 essentially ethical connotation. Nevertheless, economic 
 principles are not entirely distinct from ethical principles 
 any more than an economic basis is wholly distinct from an 
 ethical basis. As an economic basis and economic princi- 
 ples result from a political basis and principles — from a 
 political conception of the state — so the realization of econ- 
 omic principles is one of the essential conditions of the 
 realization of an ethical standard of taxation. 
 
 It may be noted also, that because of the relation of the 
 economic to the political, the principles of "universality" 
 and "equality" are also economic principles. That is, the 
 economic principles must be applied to every member of 
 the state, and applied equally, or in the same manner, since 
 every citizen stands in the same relation to the state. The 
 terms have not here any specially ethical import, but result 
 simply from the relation of the economic to the political 
 aspect of taxation. The ethical character of taxation will be 
 discussed in the two following chapters. 
 
CHAPTER VI 
 
 THE ETHICAL BASIS OF TAXATION 
 
 It has been implied throughout the preceding discussion | 
 that justice is the supreme end and the supreme test in the 
 distribution of the tax burden, and that, therefore, there 
 must be an ethical basis on which principles of justice may 
 rest, and from which they flow as a necessary consequence. 
 Indeed, no notion is more fundamental to our conception of 
 the nature of the state, or to our conception of the political 
 basis of taxation. The realization of justice as a condition 
 of the highest individual development being a supreme end 
 of the state, justice in the distribution of the burden for the 
 maintenance of the state becomes imperative. No social 
 relations involve more fully the relations of individuals to 
 each other, or the common relation of all individuals to the 
 whole body politic, than do the relations that are involved 
 in taxation. Hence no social relations are more deeply 
 ethical in their character and requirements. Here as else- 
 where, wherever the relations of man to man are involved,' 
 the ethical end becomes supreme — in conception if not 
 always in fact. 
 
 But the ethical problem, or the problem of justice in taxa- 
 tion, is as difficult as it is important. That what is ethical 
 is just is conditioned by circumstances, i. e., by the working 
 of economic forces and laws, by economic conditions and 
 results, by ethical standards and ideals — has been already 
 admitted ; but the fact has been equally insisted upon, 
 that purely " economic " results are not a test of the 
 495] '59 
 
l60 JUSTICE IN TAXATION [496 
 
 ethical, but rather that ethical considerations and ethical 
 standards are the test of the justice of economic results. 
 But this granted, it is by no means a simple problem to 
 determine what is the ethical standard, or the ethical 
 basis of taxation ; still less simple the determination of the 
 principles that should control taxation. 
 
 The problem of determining an ethical basis is tendered 
 all the more difhcult from the lack of a common agreement 
 in primary conceptions ; for our conception of an ethical 
 basis is very largely determined by our conception of the 
 state. Since, then, the conception of the state assumes a 
 variety of forms we have also a variety of conceptions of the 
 nature of the ethical basis of taxation. Nevertheless, this 
 variety may be reduced to two fundamental conceptions — 
 to " benefits " and to " ability." Into one or the other of the 
 ideas connoted by these terms every ethical basis of taxation 
 may be resolved, though each assumes several forms of ex- 
 pression. In the earlier period of taxation and of economic 
 thought, "benefits" was the more commonly accepted 
 basis of taxation, but in recent years the "ability" basis is 
 more widely accepted. Let us consider each of these in 
 turn. 
 
 I. The Benefit Theory of Taxation. 
 
 The benefit theory of taxation is, in part, an outgrowth of 
 earlier political and social conditions, particularly feudal 
 conditions; and, in part, is a natural consequence of the con- 
 tract theory of the state, or of the conception of the state as a 
 protective agency, thereby conferring benefits upon individ- 
 uals. This fact has already been adverted to,' as also the 
 fact that the doctrine is still widely accepted, and is a com- 
 monly adopted legal fiction.' It is now generally discarded 
 by economists, about the only modern school of economists 
 
 * Ante, p. 63. 
 
497] THE ETHICAL BASIS OF TAXATION i6r 
 
 still upholding this doctrine being the " Single-Taxers" ' 
 who, like their predecessors, the Physiocrats, uphold the ben- 
 efit principle of taxation.' 
 
 The general idea underlying this theory is that political 
 basis which assumes that a tax is a payment for a service ren- 
 dered by the state to the individual. That is, the basis of 
 the tax is assumed to be a "service" or the "benefit" from 
 a service ; and hence it is concluded that the tax payment 
 should be made in accordance with the "service" or the 
 "benefit" received. This basis of taxation we have already 
 considered from both the political and the economic points 
 of view. The question now is : is this a just basis of taxa- 
 tion? This question may be best answered first by briefly 
 considering the different forms which this basis of taxation has 
 assumed. But in the first place it may be observed that the 
 " service" is ultimately resolvable into the service of protec- 
 tion, or the benefits derived in consequence of the protection ; 
 while the different forms, that the basis has assumed are re- 
 solvable into either the cost of the service or into the value of 
 the service. 
 
 I. The Cost-of- Service Theory. — The idea underlying this 
 theory, or at least implied in it, is that every individual 
 should pay to the state the exact cost of his protection. It 
 has its root, we think, in the conditions that prevailed under 
 the feudal regime, and has a show of validity in the poll tax 
 and in the modern fee system. The idea is that of special 
 services, whereas the chief services of the state are general 
 in character, though it does perform services that are special 
 to individuals or to classes of individuals. For the latter fees 
 are exacted, for the former taxes. There is, then, an im- 
 portant dift'erence between fees and taxes,^ and the principle 
 that applies to the latter is not applicable to the former, 
 
 * Cf. ante, p. 109; also, Louis F. Post, The Single Tax, p. 14. 
 
 * See Seligman, Essays in Taxation, pp. 274-282, for clear distinctions. 
 
1 62 JUSTICE IN TAXATION [498 
 
 Taxes have no relation to cost, while fees do " not normally 
 exceed the cost of the particular service to the individual."' 
 Not only is the "cost" theory based upon a wrong con- 
 ception of the services of the state, but even if the service be 
 regarded as a service to the individual, the individual cost of 
 that service is beyond all possibility of determination. In- 
 deed, even in the case of special services for which " fees " 
 are exacted, the cost of the " special service " cannot be de- 
 termined ; that is, cannot be exactly determined for every 
 individual. But even if the individual cost could be deter- 
 mined, it is more than questionable if the expense of such 
 special service should be wholly covered by fees ; for the 
 state should perform no service that is wholly special to an 
 individual, or in which there is not sojne common interest; 
 and wherever such common interest exists some part of the 
 expense, at least, should be met by a tax without reference 
 to the individual cost.= The expense should be met by a 
 combination of fees and taxes, and theoretically the propor- 
 tionate amount of the fee should depend upon the relative 
 importance of the special and the common interest. For 
 special reasons, it is true, as for sumptuary or police pur- 
 poses, or as a means of taxation, fees may equal or exceed 
 the cost. But the question of fees apart, the cost to the in- 
 dividual, or on account of the individual, of a com.mon ser- 
 vice is not a calculable quantity. Cost of service cannot, 
 then; be a just basis of taxation, both because taxes are paid 
 for a common service without reference to the cost on ac- 
 count of any individual, and because, even if there were such 
 reference, the cost could not be determined. 
 
 If, now, we turn to the logical consequences of this theory 
 we shall not find it any more satisfactory as a basis of justice. 
 
 ' See Seligman, Essays in Taxation, p. 276. 
 
 * Cf. Sidgwick, Political Economy, p. 563. Sidgwick inclines to the cost-of- 
 service principle, but thinks " this principle can rarely be applied." 
 
499] ^^^ ETHICAL BASIS OF TAXATION 163 
 
 The " services " of the state, according to this theory, we 
 have seen to be the protection of persons and property. 
 Now as a general rule there is no difference, to speak of, in 
 the cost of protecting persons, considered wholly apart from 
 their property. Nevertheless, the expense is greater for 
 those subject to criminal assaults. Strictly, therefore, ac- 
 cording to the theory of costs, those who are so unfortunate 
 as to be subjected to assault should pay a penalty for their 
 misfortune by a tax in excess of that imposed upon those 
 fortunate enough to escape assault. It is, indeed, a question 
 if they should not even pay a larger tax than the criminal 
 who committed the assault. But on the whole, however, an 
 equal poll tax, so far as it should be based upon the cost of 
 protecting the person, would not be greatly at variance with 
 justice. But the problem of costs in the protection of prop- 
 erty is by no means so simple. The question is complicated 
 by being dependent in part on the kinds of property and in 
 part on the amount of individual holdings. It costs more, 
 for example, to protect property in buildings, in money or 
 other tangible forms of property, than to protect property in 
 land; and, other things being equal, the tendency would be 
 for the protection of a million dollars' worth of property in 
 the hands of a thousand individuals to cost more than the 
 protection of an equal amount of property owned by one 
 individual. The same tendency is true in the case of property 
 that is widely distributed, compared with property of equal 
 value that is greatly concentrated. On the other hand, it 
 costs but little if an)' more to protect a home and contents 
 costing one million dollars than to protect one costing one- 
 tenth of that sum. Thus the cost basis would lead us into 
 interminable and insoluble difficulties, in some cases leading 
 to proportional or to progressive taxes, in others to regres- 
 sive taxes. Justice would have no place in such a system. 
 But the most important reason why cost of service is not 
 
1 64 JUSTICE IN TAXATION [500 
 
 a just basis of taxation is because the state is necessary to 
 the highest development of the individual and must be 
 maintained regardless of the cost entailed on account of any- 
 individual member of it; because the bond of membership is 
 not a cash nexus, but a spiritual bond ; because the obliga- 
 tion to support and maintain the government of the state 
 rests upon a common, or general, interest (whose costs, as 
 we have seen, cannot be individually determined), not upon 
 a special interest ; because, in fine, tax obligation rests upon 
 membership in the state, not upon the cost of any individual 
 to the state.' Briefly, cost of service is not a just basis of 
 taxation since it rests upon a false political basis, for the 
 ethical basis, as we have seen, must be in harmony with, as 
 it is dependent upon, the political basis. The total tax 
 must, indeed, equal the total cost of the government, but 
 this cost cannot be individualized. 
 
 The same general result appears in whatever aspect we 
 consider the cost-of-service principle. Take, for example, 
 the insurance theory of taxation. Here it is held that a tax 
 is based upon the same principle as the premium of insur- 
 ance, and this is assumed to be the cost of the insurance. 
 But no insurance premium corresponds to the cost of the 
 insurance, except, possibly, in rare cases in life insurance. 
 As a rule, any particular insurance premium is much greater 
 or much less than the cost. Besides, the premium takes 
 account of the element of risk; but it is manifestly impossi- 
 ble for a government, in its protective " insurance" to take 
 account of differences in risk, just as it is impossible to take 
 account of differences of cost. The cost and the risk must 
 be averaged. 
 
 Take, again, the " productive " theory of taxation, where 
 
 ' " Die Nation giebt als Ganzes die Mitteln fiir ihren Beruf als Staat und jeder 
 Einzelne muss geben weil er died der Nation ist." Helferich, Schdnber^''s 
 Handbuch, iii, p. 139. 
 
501 ] THE ETHICAL BASIS OF TAXATION 165 
 
 the tax is regarded as a necessary part of the cost of pro- 
 duction. Here the cost of the " service " of the government 
 on account of any particular industry cannot be determined. 
 What is determined is the cost of the service to the industry, 
 which cost is equal to the tax imposed upon it, but this cost 
 to the industry has no definite relation to the cost of the 
 government on its account. For the government only the 
 total cost is determinable. The productive basis, as an ex- 
 clusive basis, would, therefore, be an unjust basis on the cost 
 theory. But it becomes still more unjust when we consider 
 that the cost of its service for protection is only a part 
 of the cost of the service that it renders. However, this 
 basis has never been assumed as a basis for the distribution 
 
 of the tax. 
 
 2. The Value-of-Service Theory. Value of service as a 
 basis of taxation has been much more generally accepted 
 than cost of service. Indeed, it has been widely accepted 
 by those who advocate "ability" as a basis of taxation, the 
 presumption being that ability to pay taxes is determined 
 by the service of the government to the individual. But in 
 all such cases, as, for example, with Adam Smith, the real 
 basis of the tax is the value of the " service," ability and 
 value of service being expressions of the same thought from 
 different points of view. 
 
 What, then, is meant by value of service as a basis of 
 taxation? It is, that the tax of every individual should be 
 based upon the value of the service of government to him ; 
 or that the individual should share in the total costs of gov- 
 ernment in proportion to the value of the benefits that he 
 derives from government. The basis of the tax centers in 
 the individual, while in the "cost" theory the basis centers 
 in the state. It is the value of the " service " to the indi- 
 vidual instead of its cost to the state. 
 
 What, now, is to be said of value of service as an ethical 
 
I66 JUSTICE IN TAXATION [502 
 
 basis of taxation ? That, like cost of service, it cannot be a 
 just basis because it is an impossible basis. The value to 
 the individual of the service of government is just as inde- 
 terminable as the cost of the service to the government on 
 account of the individual. True, no one contends that the 
 tax should equal the value of the service of government. To 
 do so would, to say the least, make the tax enormously ex- 
 ceed the cost, for the absolute utility of government bears no 
 relation whatever to the costs of government. Every tax- 
 payer, no matter how large his tax, receives a "consumer's 
 rent " that is out of all proportion to his tax. Between the 
 individual tax and the value of the service that is given in 
 return by the government, there is no comparison. We may 
 say, indeed, with Leon Say, that taxes are the price of the 
 total advantages derived from the government;' but this 
 price is not determined by the value of the service to the tax- 
 payer, as, in fact, it includes a large " consumer's rent," if we 
 may use this figure in this connection. 
 
 But value of service is an equally impossible basis when 
 understood to mean that the costs of government should be 
 proportioned to the value of the service received from it, for 
 this " value " is practically an unknown quantity, and between 
 the known and the unknown no ratio can be established. 
 Nor are we any better ofT if we suppose that the tax of every 
 individual should be such a portion of the total costs as the 
 value of the service that he receives is of the total value of 
 service, for here we have a ratio between two unknown 
 quantities, and the determination of the known by the 
 unknown. 
 
 These theoretical difficulties, however, have been evaded 
 by advocates of the value-of-service theory by the assump- 
 tion of different methods or standards of determining the 
 value of the "service:" as objectively by the amount of ex- 
 
 ^ Leon Say, La Question des Impots, vol. i, p. 1 19. 
 
503] THE ETHICAL BASIS OF TAXATION 167 
 
 penditure, the amount of property, or the amount of income ; 
 subjectively by the law of marginal utility. The briefest 
 consideration, however, must convince us that in none of 
 these do we find a satisfactory measure of the value of the 
 service of government. 
 
 (i) Expenditure. — It was a favorite thought of Hobbes 
 that expenditure, or consumption, is the surest test of the 
 benefits of government. One of the conditions of maintain- 
 ing peace, says Hobbes, is "to divide the burthens and 
 charges of the commonwealth proportionably." He then 
 adds ; " Now there is a proportionably to every man's ability, 
 and there is a proportionably to his benefits by common- 
 wealth, and this latter it is which is according to the law of 
 nature. For the burdens of the commonwealth being the 
 price that we pay for the benefit thereof, they ought to be 
 measured thereby. And there is no reason when two men 
 equally enjoying, by thq benefit of the commonwealth, their 
 peace and liberty to use their industry to get their livings, 
 whereof one spareth and layeth up somewhat, the other 
 spendeth all he gets, why they should not equally contribute 
 to the common charge. That seemeth, therefore, to be the 
 most equal way of dividing the burdens of the public charge, 
 when every man shall contribute according to what he 
 spendeth, and not according to what he gets." ' 
 
 So likewise Petty : " It is generally allowed by all that 
 men should contribute to the public charge but according to 
 the share and interest they have in the public peace ; that 
 is, according to their estates and riches : now there are two 
 sorts of riches, one actual, and the other potential. A man 
 is actually and truly rich according to what he eateth, drink- 
 eth, weareth, or any other way really and actually enjoyeth ; 
 others are but potentially or imaginatively rich. . . . Con- 
 
 • De Corpore Politico, pp. 216-7. 
 
1 68 JUSTICE IN TAXATION [504 
 
 eluding, therefore, that every man ought to contribute 
 according to what he taketh to himself, or actually enjoyeth," ' 
 
 It will be noticed that with both Hobbes and Petty the 
 measuring of benefits, and therefore taxation, by consump- 
 tion is assumed to conform with justice, as is implied in the 
 use of the moral concept " ought." But, in fact, what we 
 personally expend upon ourselves is a very inadequate 
 measure of the benefits we derive from government. To 
 have the means of potential consumption is a "benefit" 
 little, if any, less than actual consumption. Mere posses- 
 sion, however little one may expend upon himself, gives 
 power and influence that are decided assets in the list of 
 benefits. Equal consumption is not a test of equal benefits. 
 But above all, the benefits of governmental protection can- 
 not be reduced to any such material standard. Consump- 
 tion alone, therefore, is not a just standard for taxation, even 
 from the point of view of benefits. 
 
 (2) Property. — McCulIoch follows Thiers in making prop- 
 erty the measure of the benefits of the " insurance " guaran- 
 teed by government. Government being " established for 
 the common benefit of all . . . it necessarily follows that 
 every individual should contribute to its support according 
 to his stake in the society, or to his means." ^ This notion 
 that property is the measure of the benefits that we derive 
 from government is closely allied with the insurance theory 
 of taxation — that taxes are paid for the insurance of our 
 property by the government. But this conception wholly 
 neglects the benefits derived from the "insurance" of our 
 persons. Moreover, as already pointed out, there is no 
 analogy between the "insurance" of government and the 
 insurance of a private corporation. The character of the 
 benefits is entirely different ; but in neither case are the 
 benefits wholly measured by the amount of property. In 
 
 ^ Petty, op. cit., p. 83. * McCulloch, op. cit., p. 1 7. 
 
505 'THE ETHICAL BASIS OF TAXATION 169 
 
 the case of the benefits of government the amount of prop- 
 erty represents but a fraction of those received, even when 
 we include, as we should, the advantages directly derived 
 from property. 
 
 (3) Income. — A far more common standard for measur- 
 ing the benefits of government, than either expenditure or 
 property, is found in income. With the Physiocrats only 
 the income derived from the produit net of land was regarded 
 as a measure of benefits, because only the holder of land 
 enjoyed the benefits of government; and similarly, the 
 modern " single taxers " confine such income to " economic 
 rent," and for the same reason as the Physiocrats. But 
 most advocates of the benefit theory have followed Adam 
 Smith in making the benefits conditioned by the revenue 
 enjoyed under the protection of the state. And from a 
 purely economic point of view of benefits, income would 
 seem to be a truer measure than expenditure or property, for 
 it represents the means of both actual and potential enjoy- 
 ment. Property, may, indeed, also represent potential en- 
 joyment, but if it becomes actual it can only be at the 
 expense of future enjoyment, in a sense that the use of 
 income is not. 
 
 Nevertheless, income no more represents the value of the 
 benefits than does either of the other objective standards. 
 As with them, too, the enjoyment of income is only a small 
 part of the benefits of government. The fact is that each 
 and all of these objective standards beg the whole question 
 by assuming that the benefits are limited to the enjoyments 
 from expenditure, from property, or from income, yet ex- 
 pressly or tacitly the benefits in question are admitted to be 
 far more extensive. No such objective economic equivalent 
 of the value of the service is possible. They do not, there- 
 fore, lend any support to the view that value of service is a 
 just basis of taxation. 
 
I70 JUSTICE IN TAXATION [506 
 
 (4) Marginal Utility. — Although Sax claims for his the- 
 ory that it holds the key to the solution of all the problems 
 involved in other theories of taxation, it properly belongs to 
 the value-of-service theory ; only with Sax the value is sub- 
 jectively determined through the operation of the law of 
 marginal utility. That is, the value of the service is deter- 
 mined by the marginal utility of the tax, which is itself de- 
 termined by a comparison of the collective needs satisfied 
 with the intensity of private needs that might be satisfied but 
 for the tax — by the relative intensities of collective and pri- 
 vate needs. 
 
 Now if the satisfaction of collective needs were determined 
 in every respect in the same manner as private needs, much 
 might be said for this subjective valuation of public services. 
 But, in the preceding chapter, we have seen reasons for 
 holding that what is true of private needs is not necessarily 
 true of collective needs. The marginal utility of the goods 
 that would be enjoyed in the satisfaction of private needs 
 may, indeed, express the subjective value of those needs, but 
 this marginal utility does not express the value of the col- 
 lective needs. This value cannot be determined subjectively 
 any more than it can be determined objectively. It cannot, 
 therefore, form a basis for taxation, still less an ethical basis. 
 
 So far we have only negative proof that value of service is 
 not a just basis of taxation. But there is even stronger dis- 
 proof of this theory, which may be stated in a word. It is, 
 that the whole theory is based upon an entirely false concep- 
 tion of the relation of the individual to the state, and so upon 
 an entirely false conception of the nature of the obligation 
 of the individual to support the state. The ethical basis 
 must connote a more distinctively ethical idea than is con- 
 tained in the principle of quid pro quo, of an economic ex- 
 change of service for service. 
 
507] THE ETHICAL BASIS OF TAXATION 171 
 
 II. Ability as an Ethical Basis of Taxation 
 
 Whatever the accepted basis of taxation, it is always, 
 directly or indirectly, implied that the ultimate end sought 
 is " distributive justice." But more and more the conviction 
 has gained prevalence that this end cannot be attained by a 
 purely political, or purely economic basis, but only upon a 
 basis of distinctively ethical connotations ; and hence the 
 more and more is it realized that " benefits," at bottom an 
 economic conception, does not meet this requirement. On 
 the contrary, the term that is universally used to express the 
 basis of the ethical idea of distributive justice in taxation is 
 "faculty," or "ability," with the Germans "ability to pay" 
 (Leistungsfahigkeit). 
 
 The term ability {facultas) is not, however, new to finan- 
 cial science, as Bodinus, as early as the sixteenth century, 
 declared for a universal tax based on ability. We have seen, 
 too, that economists who have accepted the benefit principle 
 have followed Adam Smith in making it equivalent to ability. 
 That is, ability is determined by the benefit received, the 
 benefit determining the ability, not the ability the benefit. 
 But this view of ability begs the question; it gives a new 
 term but not a new basis. But what we want is a change of 
 ideas — a change of basis — since the benefit principle no 
 longer satisfies the moral sense. The best term, as also the 
 common term, for expressing this new basis is "ability"; 
 but whatever its former associations, it must be wholly freed 
 from any alliance with the benefit principle. This is the 
 present tendency, the benefit principle and the ability prin- 
 ciple being regarded, as they should be, as two entirely dis- 
 tinct conceptions, and not merely different names for the 
 same thing. 
 
 But although the term "ability " is the best expression 
 that we have of the ethical basis of distributive justice in 
 taxation, it is not altogether satisfactory, because of its vague- 
 
172 JUSTICE IN TAXATION [508 
 
 ness and indefiniteness of meaning. No single term, however, 
 can express fully all of the principles demanded by justice, 
 though it may contain them by implication, as the logical 
 result of the development of its own content. It is because 
 the term " ability " does meet this requirement that it is, 
 upon the whole, a satisfactory basis of taxation. The ulti- 
 mate basis of taxation, which we have all along contended 
 is ethical, must carry with itself grounds for the modification 
 and limitation of the two cardinal principles — universality 
 and equality — which is not the case with the political or the 
 economic basis. With these the principle of universality has 
 no exception, and the principle of equality no definite con- 
 tent. The content of " ability," when its implications are 
 fully developed, provides for both. It is, therefore, a dis- 
 tinctively ethical basis. Or ability is the ideal ethical basis 
 of taxation. Its full significance, however, can appear only 
 as we proceed with the development of our thesis in this and 
 in the following chapter. 
 
 But there are other reasons why "ability" constitutes the 
 ethical standard of taxation. It is not a mere, vague senti- 
 ment, but is the direct expression and outcome of the ethi- 
 cal nature of the individual and of the ethical relations of 
 individuals in the state and to the state. As more fully 
 stated by Cohn : " The demand of equity that individuals are 
 to pay in proportion to their varying pecuniary ability, is 
 accepted so unresistingly within the field of the public econ- 
 omy for the reason, in the first place, that a computation of 
 proportional cost and benefit is, in regard to many very 
 essential services, impossible ; and in the second place, and 
 more especially, because the more fundamental phases of the 
 public activity in some degree condition the very existence 
 of the individual in society, so that it appears right and just 
 that these fundamental conditions of human social life should 
 be intimately bound up with the total personal and economic 
 
509] THE ETHICAL BASIS OF TAXATION 173 
 
 strength of each individual. The appeal to the principle of 
 the pecuniary ability of the individual in matters of national 
 concern touches our sense of equity so directly and irresisti- 
 bly because it is a principle of wider scope than that of the 
 economic field alone, and is but a special application of the 
 broad principle of moral solidarity."' 
 
 This view is not only in harmony with, but it is the direct 
 logical consequence of, the conception of the state outlined 
 in the second chapter. The importance of society to the in- 
 dividual that he may become truly a person, the paramount 
 importance of the political organization of society — of the 
 state — to the development of the highest social relations and 
 the fullest realization of the ends of social and individual life, 
 the spiritual and ethical nature of these relations growing out 
 of the spiritual and ethical nature of man ; in a word, the con- 
 ception of man in society and the state makes it a demand, 
 both of the reason and the ethical sense, that every member 
 of the state should contribute to its support and maintenance 
 in proportion to his ability to pay ; or the full impHcation of 
 such a conception carries with it the obligation upon every 
 member of the state, that he ought so to contribute — that is, 
 according to his ability. It is not enough that there is a 
 soHdarity of interests — a community of interests — but be- 
 cause there is a "moral solidarity" — a community of inter- 
 ests of ethical beings — that ability is so "irresistibly" 
 accepted as the ethical basis of taxation.' 
 
 However vague, then, the term " ability " may be, it is 
 clearly the one term that most fully expresses the tax obli- 
 gation that rests upon the citizens of a state. For a tax 
 according to ability, as a universal proposition, implies just 
 that relation to others that is implied in a moral solidarity. 
 Further, ability to pay implies that the ability is relative to 
 persons, and thereby gives emphasis to the fact, already 
 
 > The Science of Finance, p. 297. * Cf. Adams, Public Finance, p. 330. 
 
174 JUSTICE IN TAXATION [510 
 
 pointed out, that the tax obligation can rest only upon per- 
 sons, since on\y persons can have a membership in and are 
 capable of obligations to the state. True, a tax involves 
 property, but property as incidental to a person. Property, 
 we have said, is the person objectified, and a tax upon prop- 
 erty is, therefore, a tax upon persons. But the obligation is 
 not upon the property, but upon the person, as the term 
 ability implies. The term " ability," moreover, has the merit 
 of implying more than personal obligation. Its content is 
 positive in character, and carries with it the idea of active 
 participation in the support of the state, corresponding with 
 active participation in the general ends of the state. 
 
 But after all that is said, ability to pay is a relative con- 
 ception. In the first place, it implies relativity to the ability 
 of others; a relativity that follows from the recognition that 
 the tax obligation that rests upon self, likewise rests upon 
 others because it rests upon persons, and because others, 
 equally with the self, are recognized as persons. In the 
 second place, the term is relative to personal wants, for 
 ability to pay taxes has no meaning, or at least lacks 
 in significance, except with reference to the relative ability 
 to satisfy collective and personal wants. For, unless the 
 paramount personal wants are satisfied, there can be no 
 tax for the satisfaction of collective wants. Besides, the 
 person must be given first consideration, since the whole 
 exists for the sake of the person — for the individual. Ethical 
 considerations, in other words, re-enforce the economic' In 
 the third place, since the tax and the satisfaction of private 
 wants require economic goods, ability to pay is relative to 
 some form of material wealth. In brief, " ability," as a basis 
 of taxation, involves the relation of one's economic wealth to 
 his personal and collective wants, compared with the similar 
 relation of every other member of the state. 
 
 ^ Cf. ante, p. 143 et seq. 
 
5ii] THE ETHICAL BASIS OF TAXATION 175 
 
 It is around these relations involved in ability — relation to 
 others, to self, and to economic goods — that the whole prob- 
 lem of just distribution of the tax burden revolves. Only as 
 the content of ability in these relations is gradually unfolded 
 are we able to get at the full meaning of ability, as only in 
 their development are we able to discover the just principles 
 of taxation. For if ability be the true ethical basis of taxa- 
 tion it must contain within itself the ethical principles of 
 taxation, just as the acorn contains the oak ; so that in de- 
 veloping its meaning we are developing the principles in- 
 volved, or implied, in it. Principles of justice are, as it were, 
 attributes of the basis of justice. 
 
 It is in the development of these principles that consists 
 the most important and the most difficult part of the prob- 
 lem of justice in taxation. For although the principles must 
 have their root in the basic idea — ability — and be developed 
 logically from it, differences of point of view or of interpre- 
 tation may lead to opposing or conflicting results. We 
 shall, nevertheless, attempt to develop these principles as 
 they appear to us as the logical consequences of the ideas 
 most naturally connected in the term " ability." The re- 
 mainder of the present chapter, however, will be devoted to 
 a review of opinions respecting the relation of ability to 
 property, to income, and to subjective sacrifice, at the same 
 lime indicating the limitations of each. 
 
 I. Ability and Property. — The most natural, as also the 
 most obvious, test of economic ability is the amount of 
 property possessed. Ability — faculty {facultas) — has 
 throughout the centuries been associated with the idea of 
 property — economic wealth. Cicero somewhere makes /rt:c- 
 ultas synonymous with wealth, or possessions, and Coulanges 
 points out that in the ninth century facultas signified one's 
 entire property.' So again in the sixteenth century, Bodinus, 
 
 ^ Coulanges, The Origin of Properly in Land, p. 72. 
 
176 JUSTICE IN TAXATION [512 
 
 in opposing the privileges of the upper classes that then 
 prevailed, declared that taxes should be universal, and should 
 be borne equally by all classes of citizens according to their 
 ability, or faculty {qicae in omnes orduies pro singulorum 
 faciiliatibiis exaeqiiantur), which he explains to mean ac- 
 cording to their wealth, or fortune {pro cujtisqiie opibus ac 
 fortunis).^ 
 
 Thus ability — faculty — and property had long been inter- 
 changeable terms when ability was first made a basis of tax- 
 ation ; so that it was one and the same thing whether the 
 basis was considered to be property or ability. Still, the 
 root idea was that the tax should be based upon ability to 
 pay, but that this ability was measured by the amount of 
 property or fortune possessed. Now there can be no doubt 
 that fortune, or property, was a fair representation of ability, 
 and so an approximately fair basis of taxation, under the 
 primitive economic conditions that prevailed in early indus- 
 trial society ; when there were no great inequalities of for- 
 tune, industries were little diversified and wealth consisted 
 almost wholly of property in land, social wants were few, and 
 social conditions were upon an approximate equality. But 
 under the conditions of modern industrial and social life, 
 where these relations no longer hold, and where there is a 
 growing class of propertyless producers, or, at least, produc- 
 tive agents without capital, it must be clear that property 
 alone affords a very inadequate test of ability ; for the ability 
 to satisfy wants — the real test of ability — and, therefore, the 
 ability to contribute to the support of the state, is not con- 
 ditioned by the personal ownership of property. Besides, 
 even where property is the source of the means of satisfying 
 wants there is not necessarily the same proportionate power 
 of satisfaction, since the means are not necessarily propor- 
 tionate to the amount of property. For not only is some 
 
 * Quoted by Meyer, op. cit., p. 4. 
 
513] THE ETHICAL BASIS OF TAXATION 177 
 
 property unproductive of further means, but productive 
 property is not always equally productive. 
 
 Nevertheless, property is an index of ability, even " un- 
 productive " or consumable property ; for the amount and 
 character of the property that we possess indicates to a very 
 large extent our power of satisfying our wants, and, there- 
 fore, our tax ability. It is, indeed, as an " index," not as an 
 absolute measure, that property is regarded by those who 
 hold it to be synonymous with ability, though the index 
 is necessitated more from practical than from theoretical 
 grounds. Baer, for instance, would base all taxes upon 
 property,' because property is a measure of ability. To get 
 at a more accurate relation between property and ability, 
 however, he divides property into three classes — productive 
 property, unproductive property and property whose desti- 
 nation is not yet determined upon." For each class there is 
 an index, or indices, since the amount cannot be accurately 
 determined directly. For example, the index for productive 
 property is capitalized interest, while for unproductive prop- 
 erty the indices are the articles of common consumption, the 
 " ability " of this class of property being reached by con- 
 sumption taxes — on wines, spirits, tobacco, etc. 
 
 But even as an index the property test is wanting in im- 
 portant particulars. It is true that property as a basis of 
 taxation does not mean that the tax should be paid out of 
 property, otherwise the property, and with it the ability, 
 would soon be exhausted. The tax is presumed to be only 
 nominally upon property ; in reality it is upon income. 
 That is, the " index " is an index of income, and the real 
 basis of ability is thereby assumed to be income, and not 
 
 ^ " II criterio per giudicare della parita delle condizione o di loro rapporti in piu 
 o in meno non puo essere altro che quello dell, importanza delle sostanze, dell' 
 avere, dei beni che si possegono." L" Avere e V Imposta, p. 19. 
 
 ' Ibid., p. 32 et seq. 
 
178 JUSTICE IN TAXATION [514 
 
 property. But for practical reasons Baer and others would 
 base the tax upon property as the best means of ascertain- 
 ing income, it being a practical impossibility to determine 
 real income by direct methods. This, too, is the common 
 practice and is a necessity for many forms of income. But 
 it is not less true that many forms of property are, in prac- 
 tice, very imperfect indices of income, or ability; as note, 
 for example, the universal failure of personal property taxes. 
 For income not derived from property a more accurate 
 test is consumption, and consumption taxes, such as those 
 on spirits, tobacco and other luxuries, are a more accurate 
 test of ability. 
 
 However important, then, property may be as an index to 
 income, and therefore of ability, it needs to be supple- 
 mented by other tests to reach the full tax ability. It is 
 theoretically defective because, being indirect, it affords 
 only a proximate test of the power to satisfy wants ; it is 
 practically defective because many forms of property cannot 
 be discovered by the tax assessor. We cannot, therefore, 
 subscribe to the contention of Menier, that the state has no 
 right to inquire into what one makes or does, but only into 
 the share of the national fortune that he possesses.' 
 
 2. Ability and Income. — Since Adam Smith first pub- 
 Hshed his famous canons of taxation, property, as a measure 
 of ability, has been commonly interpreted to mean revenue, 
 or income. That there is, indeed, some doubt what was in 
 the mind of Smith when, in explaining the term " abilities," 
 he wrote : " That is, in proportion to the revenue which they 
 respectively enjoy under the protection of the state," may 
 be admitted.'^ But however this may be, it has generally 
 been understood to mean that ability is measured by income, 
 and it is with this meaning that the first canon has been so 
 
 1 Cf. Menier, op. cit., p. 196. 
 « Op. cit., p. 414. 
 
515] THE ETHICAL BASIS OF TAXATION 179 
 
 universally accepted, it being assumed that Smith stood for 
 the principle of " ability " rather than that of " benefits." 
 
 However true it may be that there are circumstances 
 when it is necessary to use property as a measure or index, 
 of income, there can be no doubt but that income is a truer 
 measure of ability than is property. For in income is 
 represented the actual earning power of the individual, the 
 realized capacity of providing the material means for the 
 satisfaction of wants. Moreover, income as a measure of 
 ability is in harmony with the fact we have so often em- 
 phasized, that the tax is a tax upon the person — upon his 
 ability to satisfy his wants. 
 
 But after all, income is a very vague and indefinite 
 measure of ability. If we are to measure ability by income 
 we must know what is meant by income ; also, the character 
 of the income that determines the tax ability, that is, what 
 portion of the total receipts of the individual constitutes his 
 taxable income. 
 
 (i) Meafiing of Income. — By income is generally un- 
 derstood the returns that come in to the individual as the 
 result of his economic activities, or from his control of 
 the economic activities of others. It does not, however, 
 include the total receipts of an industry. These are known 
 as " gross incomes." Income, properly so called, is the 
 "net income" that results after deducting from the gross 
 income the costs of production and the maintenance of the 
 plant. That part of the gross income that is absorbed in 
 costs and maintenance is not a return that is at the disposal 
 of the individual. The expenditure is essential that there 
 may be any return, but it does not of itself add anything to 
 that which was already possessed. Income, in an economic 
 sense, implies an increase of wealth in addition to that which 
 is already possessed, and which comes in within a definite 
 period of time, giving an increased power of satisfying wants 
 
l8o JUSTICE IN TAXATION [516 
 
 within that period of time. Only net income is such an in- 
 come. 
 
 But the term "income " has been given a more extended 
 meaning, and has been made to include the indirect income 
 from enjoyment, or use, of so-called " unproductive" pro- 
 perty, thus giving emphasis to periodic enjoyment rather 
 than to periodic new acquisitions. All income, indeed, is 
 valuable only as it affords means of enjoyment, to the satis- 
 faction of wants. Income is a means, satisfaction the end. 
 Hence possession of property is by some regarded as an 
 addition to the money income derived from gainful occupa- 
 tions, for its possession enables a given money income to 
 satisfy the wants that otherwise remain unsatisfied. Such 
 possessions are houses (occupied by the owner) and their 
 furnishings. Take, for example, A and B, having equal 
 money incomes, but A owning his house, while B rents a 
 house of equal value, say at five hundred dollars per annum. 
 Clearly, five hundred dollars represent the excess of A's 
 income over B's, as measured in the satisfaction of wants. 
 That is, A has five hundred dollars to spend for satisfactions 
 that B cannot enjoy, has five hundred dollars more to dis- 
 pose of than B has. His " ability," therefore, is greater than 
 B's to the extent of five hundred dollars, other things being 
 
 equal. 
 
 That the same is true of household furnishings, paintings, 
 or other" unproductive" property of this class, is not equally 
 clear. True, if enjoyment is the test of income, such prop- 
 erty is an advantage to income, just as is the ownership of a 
 home. Yet the two cases appear to us to be quite dilTerent, 
 particularly in the case of luxuries. The enjoyment of these 
 is not income in the sense that house rent saved by owner- 
 ship is income. They are enjoyments procured by means 
 of income, but are not an addition to income — do not save 
 income — in the sense that this is true of house rent saved. 
 
517] THE ETHICAL BASIS OF TAXATION 181 
 
 As a rule (where not from gift or inheritance) they are an 
 index of income, but not themselves income. They do not 
 increase ability; on the contrary, they decrease it. Neces- 
 sary household furniture should, perhaps, be excluded from 
 this class, but from the practical impossibility of determin- 
 ing where the necessity ends and the luxury begins, no dis- 
 tinction should be made. If, however, with Cohn we regard 
 luxuries as " income consumed in kind," ' we must admit 
 with Meyer that its value " is impossible to reckon." ^ 
 
 The mistake, we are inclined to think, lies in making en- 
 joyment the sole criterion of income. Because income has 
 value only as it is a means of enjoyment, it does not follow 
 that all means of enjoyment are income. If such is the test 
 of income, then there is little that is not income. All con- 
 sumable goods would be income — food, clothing, shelter, 
 etc, etc. Yet how small would be the income of the miser, 
 however large his hoardings. 3 This is a needless confusion 
 of ideas. For our purposes, at least, luxuries should not be 
 regarded as income, but only as indices of income, and this 
 is really the way in which Cohn regards them.* The income 
 that we are seeking is the income that brings in annually 
 positive acquisitions of material goods, disposable for the 
 satisfaction of wants, and whether the acquisition is direct 
 or indirect. Luxuries, we repeat, do not constitute such an 
 income. They do not increase the sum of disposable goods 
 in the sense that this is true of the ownership of a house. 
 They represent satisfactions enjoyed — income expended — 
 but they add nothing to ability, but only indicate its extent. 
 
 * Cohn, op. cit., p. 359. * Meyer, op. ciL, pp. 327-8. 
 
 * Cf. Rogers' criticism of Adam Smith's first canon in note to his edition of 
 Wealth of Nations, p. 414. Much of this criticism is strained, particularly where 
 Rogers concludes that if the emphasis of Smith is on " protection," then women 
 and children should pay heavier taxes. The protection clearly refers to " revenue," 
 not to persons. 
 
 * Cf. for example, op. cit,, pp. 360-1. 
 
1 82 JUSTICE IN TAXATION [518 
 
 (2) Taxable Income. — If we are right in our determination 
 of the nature of income, we have next to inquire what is the 
 character of taxable income, the income that determines tax 
 ability. Evidently this cannot be gross income; for this 
 would be, in effect, a tax upon the source of income, whose 
 tendency would be the gradual extinction of income, of satis- 
 factions, and thereby of ability. Costs and maintenance 
 should, therefore, be rigidly excluded from taxable income.' 
 (This is not saying that for practical reasons there should 
 not be nominal taxes on gross income or capital.) What is 
 left after these deductions is a net income. This, or some 
 part of it, must then be the taxable income, the income that 
 determines tax ability. Whether it is the whole or a part 
 only of the net income that is the taxable income, economists 
 do not agree. 
 
 With the earlier economists, following the Enghsh school, 
 the taxable income was held to be the "pure" income — the 
 net income minus the necessary cost of subsistence. That 
 is, there was assumed to be no ability to pay taxes until the 
 income exceeded that required to supply the necessaries of 
 life, since in the satisfaction of wants there is no " clear " 
 income until the stage of enjoyments is reached.^ This 
 view of income, it is true, is peculiar rather to the benefit 
 than to the ability theory of taxation, it being assumed that 
 there can be no benefits of government until after the means 
 of subsistence are provided for. But it has its advocates 
 also in those who accept the ability basis of taxation, and, as 
 we shall see later, not without much show of reason. 
 
 But largely through the influence of the German econo- 
 mists, the net income is now far more generally accepted as 
 the true taxable income ; at least nominally so. That is, it 
 
 1 " Man darf die Henne nicht schlachten welche goldene Eier legt." Schaffle, 
 Grundsdtze, p. 57. 
 ' Cj. Stein, op, cit., p. 230. 
 
519] THE ETHICAL BASIS OF TAXATION 183 
 
 is considered as the theoretical ideal, but is negatived as an 
 ideal by the admission of exemptions. According to Wag- 
 ner, the "net" income theory is the logic of the financial 
 view-point, while the ""clear" income theory is the logic of 
 the social-political view-point.' The chief defense of the 
 net income theory is found in the indispensableness of the 
 state to the individual. Being a necessity, it should be 
 placed upon an equality with other necessities in respect to 
 satisfaction. This would seem to follow, too, from the 
 nature of the state as we have regarded it; also from both 
 the political and the economic basis of taxation. That is, 
 from the universal obligations of citizenship, and from the 
 seemingly relative importance of collective and private wants. 
 When, however, the taxable income is viewed from the 
 standpoint of ability it is not so self-evident that it is repre- 
 sented by net income; unless, indeed, we assume that net 
 income measures ability, in which case we have but a vicious 
 circle. If, as we think Schafifle justly says: "Ability is an 
 expression for how much a taxable unit can give up to the 
 support of the state without injury to his own relative sup- 
 port,"^ it is questionable if there is a taxable income — 
 ability — until a "clear" income appears — an income over 
 and above the necessities of life. Whether, however, the 
 taxable income is a "net" or a "clear" income; whether, 
 that is, ability is determined by net or clear income, is a 
 question that involves political and ethical considerations 
 that are inseparable from the problem of the exemption of 
 the minimum of subsistence. In other words, it involves 
 the problem of the justice of exemptions. We may, there- 
 fore, postpone further discussion of this question until we 
 take up the problem of exemptions in the following chapter. 
 But it is a question, also, whether or not ability is affected 
 by source, permanence, and size of income ; but this is a 
 
 ' Op. cii.,'Tp. 330. * Grundsdize, p. 23. 
 
1 84 JUSTICE IN TAXATION [5 20 
 
 question of rates, which like that of exemption, is a question 
 of principles, and will, therefore, also be deferred to the fol- 
 lowing chapter. Here, we wish only to emphasize the fact 
 that a prime condition of " ability " is a net income. That 
 it is not the only condition we shall see later. 
 
 A somewhat dififerent criterion of ability-determining in- 
 come was advocated by the late President Walker. Accord- 
 ing to him ability is determined, not by actual income but 
 by the capacity, or faculty, to produce income ; not by 
 realized but by realizable income. Accordingly he defined 
 ability (he used the term faculty) as the " native or acquired 
 power of production," a tax on this basis being the " most 
 equitable form of public contribution."' Property, expendi- 
 ture, and revenue all come in for criticism as a basis of 
 taxation. Property, because a tax on property " constitutes 
 a penalty on saving (p. 3); expenditure, because "the 
 revenue rights of the state attach equally to every portion of 
 private revenue, irrespective of the consideration whether 
 any such portion is to be spent or saved" (p. 11), and 
 because any exemption of expenditure, "on the ground that 
 it is to be used for the public good," involves the right, 
 which may become a duty of the state, " to see that such 
 wealth is, in fact, in all respects and at all times put to the 
 best possible use;" and it is added: "If this is not social- 
 ism of the rankest sort, 1 should be troubled to define 
 socialism" (p. 12); revenue, because "the revenue tax 
 lays the heavier burden upon him who most fully and dili- 
 gently uses his abilities and opportunities. It even accepts 
 indolence, shiftlessness and worthlessness as a sufficient 
 ground for excuse from public contributions" (p. 14). In- 
 deed, " to tax wealth instead of revenue is to put a premium 
 upon self-indulgence, in the form of expenditure for present 
 enjoyment," while " to tax revenue instead of faculty is to 
 
 1 Francis A. Walker, "The Basis of Taxation," in Polit. Set. Quart., vol. iii, p. 14. 
 
52 1 ] THE ETHICAL BASIS OF TAXATION 185 
 
 put a premium upon self-indulgence in the form of indolence, 
 the waste of opportunities, the abuse of natural powers." 
 Hence, " a faculty tax constitutes the only theoretically just 
 form of taxation, men being required to serve the state in 
 the degree in which they have ability to serve themselves," ' 
 any departure from this rule constituting a departure from 
 justice. 
 
 As a purely theoretical ideal this view of the tax basis is> 
 perhaps, sound. It has the merit of emphasizing the 
 necessity of positive effort ; it justly expresses the moral 
 obligation resting upon every citizen to put forth his fullest 
 energies and powers to the support of the state on whose 
 maintenance depends his civilized existence; it justly empha- 
 sizes, also, the moral obligation resting upon the individual 
 because of his ethical relations to his fellow men, growing 
 out of his and their natures as spiritual beings — as persons — 
 and the identity of their mutual relations to the state. 
 
 But if this is the ideal', it is an ideal to be realized only in 
 the millenium. Under existing conditions of society it cannot 
 be admitted that departure from it is departure from justice. 
 From the practical viewpoint the chief objections to this 
 theory of ability are : it is Utopian ; it necessitates most arbi- 
 trary powers of government; it is too objective, {a) It is 
 Utopian since there is no way of determining whether the 
 " native or acquired powers of production" have been exer- 
 cised to their utmost capacity, if material results are not be 
 taken as the expression of the potential capacity under exist- 
 ing social and economic conditions (as no doubt in many 
 cases they cannot be), {b^ The only other alternative is the 
 determination of these powers by the government. But this 
 
 ''■Ibid. p. 15. To the same effect Mile. Royer writes: "Nous devpns contribuer 
 de nos personnes, de nos facultfes intellectuelles et de nos forces physiques, comme 
 de cette extension ext6rieure de notre etre que nous appelons nos biens, nos pro- 
 pri6t6s." Thiorit de V Impdi, p. 24. 
 
1 86 JUSTICE IN TAXATION 522 
 
 could not be except by most arbitrary methods and with 
 most indifferent results. Besides, such a method of determi- 
 tion would defeat itself, since the highest productive efficiency 
 would not be obtained under such a sj^stem of governmental 
 slavery. Moreover, when a government assumes the func- 
 tion of seeing that every individual develops his latent 
 power, and that no one be allowed to shift his burden upon 
 others by "indolence, shiftlessness and worthlessness," logi- 
 cally and justly it will be compelled to guarantee the condi- 
 tions of their exercise, just as the logic of the Elizabethan 
 Poor Laws was the public workhouse ; for these powers can- 
 not be exercised where the means are wholly wanting, any 
 more than the "vagabond" could work without tools and 
 materials. Still more, with such functions it would "unmis- 
 takably be the right, and it might even become the duty of 
 the state to see that such powers are, in fact, in all respects 
 and at all times put to the best possible use. But, " if this 
 is not socialism of the rankest sort I should be troubled to 
 define socialism." In fact, no action of the government 
 could be more paternal or more arbitrary.' (c) Finally, 
 this view of the ability is too subjective, too indeterminate, to 
 be of practical value. In determining the ability of the tax- 
 payer, the government is bound of necessity to measure his 
 ability by objective, not by imaginary results. In short, we 
 must, as Spinoza would say, deal with adequate ideas of the 
 understanding, not with confused ideas of the imagination. 
 Or actual income, not the theoretical possibilities of income, 
 is the safest guide to real tax ability. 
 
 Yet it must be admitted that the mere objective fact of 
 income is but one factor in the determination of tax ability. 
 
 ' Neumann opposes to the basing of the tax on the ability to produce the follow- 
 ing objection : " Die Ermittelung dariiber wie viele Jemand nach seiner k5rper- 
 lichen oder geistlichen Fahigkeiten noch erwerben konnte, diirften schwer zum 
 Ziele fuhren und entsetzlichster Willkiir Thiir und Thor offnen." Die Progressive 
 Einkommensteuer, p. 172. 
 
523] THE ETHICAL BASIS OF TAXATION 187 
 
 Not only must we take account of income, but also of the 
 legitimate demands upon that income. Or, from a different 
 point of view, it is a question of the effect upon the tax- 
 payer of the deprivation of a part of his income for the sup- 
 port of the state — the effect of contributions for his collect- 
 ive wants upon the satisfaction of his private wants. This 
 suggests a negative and subjective determination of ability : 
 That it is not income that determines it, but the sacrifices 
 endured by the taxpayer in the way of the non-satisfaction 
 of private wants, of the loss of personal enjoyments. This 
 view has suggested the sacrifice theory of taxation, or 
 ability. 
 
 Ill Ability and Sacrifice 
 
 I. Mill. — The first writer clearly to substitute subjective 
 sacrifice for objective ability, as measured by revenue, as the 
 basis of taxation, was John Stuart Mill' With Mill the basic 
 idea in the distribution of taxes is sacrifice. The aim of 
 justice in taxation is to effect an "equality of sacrifice;" not 
 the giving up of equal shares of the means of enjoyment — 
 revenue — but the giving up of equal enjoyments. " The true 
 principle of taxation I conceive to be, not that it shall be 
 equal in proportion to means, but that it shall, as far as pos- 
 sible, demand an equal sacrifice from all," /. e., a " propor- 
 tional sacrifice of enjoyments."^ 
 
 This is Mill's substitute for taxation " according to 
 ability." In a sense it is his explanation of the meaning of 
 ability, though to Mill the idea of sacrifice is not so much an 
 interpretation of ability, as it is a new principle of taxation. 
 For with him the fundamental idea of justice is to be ex- 
 plained, not in terms of ability, but in terms of sacrifice. 
 The ideal is, "equality of sacrifice;" that each person 
 
 ^ Political Economy, bk. v, ch. 2, § 2. 
 
 * Report of the Tax Commission of 18^2, Mill's testimony, pp. 286, 312. 
 
1 88 JUSTICE IN TAXATION [524 
 
 " shall feel neither more nor less inconvenience from his 
 share of the payment than every other person experiences 
 from his." ' 
 
 This view of the basis of justice in taxation is the natural 
 result of the reflections of a philosophic mind on the obliga- 
 tions of the citizen to the state, and is no doubt influenced 
 by a utilitarian ethics whose highest principle is the greatest 
 possible sum of pleasure to each consistent with the like 
 pleasure of others. It emphasizes the idea that the obliga- 
 tion of the individual to the state calls for a sacrifice, a 
 giving up, rather than an active, positive effort, and in this 
 respect is directly opposite to the theory of Walker. From 
 the viewpoint of Mill, " equality of sacrifice " is clearly the 
 best expression we have of the theoretical ideal of the obli- 
 gation resting upon the taxpayer; but, to our mind, this 
 negative conception of our obligations does not bring out so 
 clearly and fully our relations to the state as does the posi- 
 tive conception that calls for efTort, activity, the fullest exer- 
 cise of our faculties — taxation according to ability. We are 
 inclined to think, too, that, theoretically at least, the two 
 conceptions are quite distinct, representing distinct bases of 
 taxation. 
 
 Practically and objectively, however, there is no difference. 
 For we find that Mill, in his testimony before the Tax Com- 
 mission, is compelled to appeal to an objective standard — 
 income or property — for the determination of the equal 
 sacrifices. Ideally, he thinks, that equality of sacrifice is a 
 proportion to what one is able to spend — his income ; but 
 for practical reasons — the low state of morality — there 
 should be an " equal sacrifice according to means," ^ which 
 is just what Mill has said is not the true principle of taxa- 
 tion. In short, viewed with respect to their objective ex- 
 pression, ability and sacrifice are but two aspects of the 
 1 Political Economy, v. 2, § 2. ' See Testimony, p. 301 et seq. 
 
52 5 THE ETHICAL BASIS OF TAXATION 189 
 
 same idea, the tertiiun qtcid being income, by which Mill 
 means a "clear" income, including in the deduction not 
 only the necessaries but also the lesser comforts, the taxable 
 income being that part of income that is spent upon luxuries. 
 So that equality of sacrifice comes to this : That each 
 should "pay a fixed proportion, not of his whole means, 
 but of his superfluities," ' just what taxation according to 
 ability means to the advocate of the clear income theory. 
 
 2. Wagner and Neumaim. — Since the time of Mill 
 "equality of sacrifice" has come to be very generally 
 accepted as expressive of the basis of just principles of taxa- 
 tion, but it is not considered as a distinct principle, but only 
 as the subjective form of ability. Yet, while some, like 
 Mill, find in the conception of sacrifice the true basis of jus- 
 tice, others find that this basis is best expressed in the con- 
 ception of ability. Wagner, for example, accepts the sacri- 
 fice theory of Mill but thinks that the true norm of taxation 
 is the economic ability to pay (wirthschaftliche Leistungs- 
 fahigkeit), but that the sacrifice theory shows more defi- 
 nitely how equality in taxation — taxation according to 
 ability — is to be accomplished,^ or the meaning of ability. 
 So likewise Neumann : " It is through a consideration of the 
 sacrifice imposed that the measure of ability acquires defi- 
 nite form and becomes useful for a system of taxation." 3 
 
 That is, both Wagner and Neumann find in the idea of 
 " taxation according to ability " the real norm or demand of 
 justice, but hold that the attainment of this norm is best 
 accomplished in terms of sacrifice. This, I think, is the 
 more usual form in which the ability and sacrifice theories 
 
 ' Political Economy , v. 2, § 3. 
 
 * «' Hier dient diese Theorie [OpfertheorieJ dazu, genauer den Weg zu weisen 
 wie die Gleichmassigkeit der Besteuerung durchzufuhren ist." Wagner, Finamw. 
 
 ". P- 349- 
 
 •Neumann, Progressive Einkommensteuer, p. 62. 
 
I90 JUSTICE IN TAXATION [526 
 
 are held. And it has the merit of at once emphasizing the 
 fact that in the positive idea of ability — effort — is the real 
 basis of the tax obligation ; and at the same time, also, that 
 every tax necessarily involves the sacrifice of personal satis- 
 factions, the degree of the sacrifice marking the degree of 
 ability, while the relative sacrifice of each to the sacrifice of 
 others, marks the relative tax ability. Hence, accordingly, 
 equal taxation according to ability is theoretically attained 
 by effecting an equality of sacrifice. 
 
 In determining the equality of sacrifice, however, Wagner, 
 Neumann, and others are compelled, like Mill, to revert to 
 objective standards. Indeed, with most the practical stand- 
 ard is one rather of objective than of subjective sacrifice — 
 the effect upon objective economic conditions, rather than 
 upon subjective feelings. But Wagner and Neumann go 
 even farther than does Mill in making allowances for the 
 external circumstances that affect the sacrifice and thereby 
 determine the ability; for they consider not only the source, 
 size and character of the income, but also the circumstances 
 and condition — health, indebtedness, etc. — of those de- 
 pendent upon it. By considerations such as these, it is 
 assumed, an equality of sacrifice may be attained, or, that 
 " taxes will occasion equal efforts and sacrifices over against 
 other needs." ' 
 
 3. Meyer. — Nominally opposed to the theory of Wagner 
 and Neumann, and in form more nearly akin to the view of 
 Mill, is the theory of Meyer, who insists that equality of sub- 
 jective sacrifice is the true tax basis, but admits that this 
 equality can be effected only through a consideration of the 
 "ability to pay."' The difference, however, is more in 
 seeming than in reality, except in the emphasis given to the 
 central idea that lies at the basis of a just distribution of 
 taxes, the emphasis being given in the one case to ability, 
 
 * Neumann, ibid., p. 6j. ^ Cf. Meyer, op. (it., §§ 50 and 53. 
 
527] THE ETHICAL BASIS OF TAXATION 191 
 
 and in the other to the idea of sacrifice. But there is no 
 difference with respect to the objective and practical stand- 
 ard of abihty, or sacrifice. 
 
 The theory of Meyer, however, is not a mere restatement 
 nor a mere expansion of the theory of Mill. It is peculiar 
 to the theory of Meyer, as distinguished from the preceding 
 views of sacrifice, that he gives greater definiteness to the 
 meaning of the subjective sacrifice occasioned by the tax, by 
 connecting it with the intensities of our " marginal wants," 
 the intensity of the marginal wants occasioned by the tax, 
 measuring the degree of the subjective sacrifice. But Meyer 
 understands by the marginal want affected by the tax, not 
 the last want unsatisfied because of the tax, but the last 
 want attaining satisfaction.' In this view of the marginal 
 want effected by the tax Meyer seems to think that he has 
 discovered some new principle, but we fail to see what pos- 
 sible difference it can make, in measuring the subjective 
 effect of a tax, whether we consider the effect upon the 
 intensity of the last need attaining satisfaction, or upon the 
 intensity of the first want given up — unsatisfied — because of 
 the tax. If equality of sacrifice is the aim, what possible 
 difference can it make whether the equality is established 
 between the last want attaining satisfaction, or the want 
 unsatisfied because of the tax — the first want that would 
 be satisfied if the tax were removed? If there is an 
 " equality" in the first case, there is, of necessity, equality 
 in the second case. The distinction is without a real 
 difference. 
 
 That Meyer has given us a more definite conception of 
 the nature of the sacrifice occasioned by the tax, and a more 
 
 ' " Das Opfer nicht in der Intensitat der in Folge der Steuer unbefriedigt blciben- 
 den Bediirfnisse, sondern in dem Masse erblicken in welchem die durchscbnitt- 
 liche Intensitat der letzen zur Befriedigung gelangenden Bediirfnisie in Folge der 
 Steuer erhSht wird." Meyer, op. cii., p. 332. 
 
192 JUSTICE IN TAXATION [528 
 
 definite standard for measuring the subjective equality, than 
 did Mill, must be admitted, though in result there is no real 
 difference. The equality in the intensity of the last need 
 attaining satisfaction is precisely the equality of Mill — that 
 one person should feel the tax no more than every other per- 
 son feels it. In neither case is the equality thought of as an 
 absolute equality, but only that the " feeling " or the " in- 
 tensity " is for each person, under the circumstances in 
 which he is placed, exactly what it is for every person other 
 under the circumstances in which he is placed. That is, it 
 is a purely relative equality. 
 
 Has Meyer, then, added anything to the solution of the 
 problem of justice in taxation by his reduction of " equality " 
 to a comparison of " marginal wants," or rather of the in- 
 tensities of m.arginal wants ? True, as a purely theoretical 
 conception, it would be difficult to find a more exact, or 
 more precise, conception of the idea of " equality of sacri- 
 fice " than is to be found in the conception of a relative 
 equality of intensities — i. e., of sacrifices — of marginal wants 
 (of either margin) as occasioned by the tax. And true, 
 also, that the conception of " ability " finds, perhaps, its most 
 perfect subjective expression in the idea of a relation between 
 the intensity of collective wants and the intensity of marginal 
 per.f'Onal wants ; while relative ability finds its most perfect 
 subjective expression in the idea that tax contributions 
 should produce the same relative effects upon the satisfac- 
 tion of the marginal, personal wants of every taxpayer. We 
 cannot, therefore, agree with Leroy-Beaulieu that the sacri- 
 fice theory is a piece of pure sentimentality.' 
 
 On the other hand, it must be admitted that this subjective 
 comparison of marginal wants is of little or no practical im- 
 portance, -since in either case, as we have seen, they can be 
 interpreted only by reference to objective facts — to economic 
 
 ^ " Cette theorie est simplement sentimentale." Op. cit., i, p. 140. 
 
529] THE ETHICAL BASIS OF TAXATION 193 
 
 conditions and personal circumstances. But if, however, we 
 retain the idea of sacrifice along with that of ability, it can 
 be of little consequence whether we consider " equality of 
 sacrifice" as explaining " ability," or ability as explaining 
 equality of sacrifice; although, as we have pointed out, the 
 conception of " ability" best expresses the ideal of justice. 
 Yet in either case or whether, with Professor Ely and others, 
 we regard " equahty of sacrifice" and "ability to pay" as 
 but different expressions of the same fundamental idea,' we 
 are involved in a vicious circle. The solution of this circle, 
 according to Sax, is to be found in his great discovery — the 
 Theory of Equivalence. 
 
 4. Sax. — From the fact that Sax disclaims ethics in 
 finance, and believes that the whole problem of taxation is a 
 purely economic problem, it might seem, at first thought, 
 that a discussion of his theory is out of place in a discussion 
 of the ethical basis of taxation. But in spite of any dis- 
 claimer, the fact is that Sax, equally with every other writer 
 on the theory of taxation, has in mind as an ultimate end 
 an ethical basis and ethical principles ; only with Sax, as we 
 have previously seen, the fulfillment of the ethical end is to 
 be attained by the free play of economic forces. It is 
 proper, therefore, to examine his theory of justice and to 
 inquire whether he has made any real contribution, in the 
 solution of the problem, to the thought of his predecessors.' 
 
 We have already sufficiently discussed the general features 
 of the theory of Sax, and have found that his theory, like 
 that of Meyer, is founded upon the intensity of marginal 
 wants as resulting from the tax. It is, however, to the merit 
 of Sax that he emphasizes rather the " satisfactions " than 
 the " sacrifices," ^ thus calling attention to the positive, 
 
 > Cf. Ely, Taxation in American Cities, pp. 80 and 237. 
 
 ' Sax, " Die Progressivsteuer," in Zeitsckrift fiir Volkswirthschaft, Socialpolitik 
 und Verwaltung, Erster Band, I Heft, p. 87. 
 
194 JUSTICE IN TAXATION [530 
 
 instead of the negative, relations of the individual to the 
 state. In the scale of wants, too, Sax brings out more 
 clearly the inclusion of collective wants, the taxpayer, theo- 
 retically at least, making his comparisons between his mar- 
 ginal collective and marginal private wants ; whereas with 
 Meyer the comparison is virtually between the marginal 
 private wants before and after the tax ; or, when relatively 
 considered, it is between the marginal want (as affected by the 
 tax) of different taxpayers — a comparison impossible to make 
 except through objective standards. In reality, however, 
 with Sax, no less than with Meyer, the comparison is be- 
 tween the intensities of marginal private wants as they are 
 afifected by the tax, and he gives to these wants, also, the 
 same objective reference. 
 
 What, then, according to Sax, is the standard of justice? 
 In the first place, Sax makes no effort to refute the ability 
 and sacrifice theories, further than to maintain that in them- 
 selves they explain nothing; just as, to the utilitarian econ- 
 omist, the law of " demand and supply" is an explanation of 
 economic facts that does not explain — the ultimate, efficient 
 cause being wanting, and there being no third term of com- 
 parison, other than that of " general feelings." What Sax 
 seeks to do, then, is not to overthrow " ability " or " sacri- 
 fice " as a basis of taxation, but to supply the tertium com- 
 paratio7iis that gives them meaning, makes them intelligible. 
 This " tertium,'' as we saw, Sax finds in " sensation." For 
 the determination of ability or sacrifice lies in a comparison 
 of the intensities of marginal needs, before and after the im- 
 position of a tax; and "all needs have, without distinction 
 of ends to which they are referred, a tertium comparationis 
 in sensation."' 
 
 Hence, therefore, the problem of tax distribution — taxa- 
 tion according to ability, equality of sacrifice — revolves 
 
 ' Grundlegung, p. 194. 
 
53 l] THE ETHICAL BASIS OF TAXATION 195 
 
 about sensation, and when " reduced to a nutshell," we find 
 it to be, " that our tax payments should be equivalent," ' 
 i. e., should effect equivalent sensations. And when this is 
 accomplished distributive justice will be attained, because it 
 will be the fulfilment of economic laws.^" Moreover, it is in 
 the "equivalence" of sensations resulting from the imposi- 
 tion of a tax that ability and equality of sacrifice for the first 
 time find a complete, ultimate explanation. 
 
 But in what respect does this "equivalence of sensations" 
 differ from "equality of sacrifice" as understood by Meyer 
 — the equal sacrifice of enjoyments as measured by the 
 intensity of feeling (of sensation) of the marginal wants 
 attaining satisfaction after the payment of the tax? The 
 great discovery of the tertium coniparationis is not, therefore, 
 the discovery of Sax. In short, with Sax, equally with 
 Meyer, the standard of justice in taxation is equahty of 
 sacrifice — the production of an equal (= equivalent) in- 
 crease in the intensity of" feeling of the marginal want satis- 
 fied, or of the marginal want unsatisfied, because of the tax. 
 Thus, that " equivalence of sensations " — i, e., of sacrifice — 
 is only "equality of sacrifice" in a new dress is clear; also, 
 from the fuller statement of the law of "equivalence: " that 
 " every individual shall value the goods taken from him just 
 as highly as every other individual values those taken from 
 him, their respective stations in life being taken into con-' 
 sideration,"3 a formula given by Mill forty years previously 
 as expressing the meaning of " equality of sacrifice." 
 
 Yet Sax. himself, does not admit that his theory of sacri- 
 fice is at all in agreement with that of Meyer. He points 
 out that Meyer regards the wants within each group of 
 wants as having the same intensity, and insists, no doubt 
 more correctly, that they have varying intensities. Accord- 
 ingly, he accuses Meyer of making equality of sacrifice mean 
 
 ^ Die Progressivsieuer, p. 90. *Ibid., p. 89. ' Grundlegung, p. 514. 
 
196 JUSTICE IN TAXATION [532 
 
 a loss of equal utilities ; whereas, says Sax, " equal sacrifice 
 is not the dispensing with equal enjoyments, but with equal 
 parts of respective enjoyments [within the dififerent groups]. 
 That is, by equal sacrifice is not meant absolutely equal, but 
 relatively equal sacrifices;" or, "that the enjoyments that 
 each person loses by means of the tax shall stand in the 
 same relation to the total enjoyment made possible by 
 means of his income."' But the difference is purely verbal 
 so far as it has reference to the character of equality. Abso- 
 lute equality is, no doubt, just as " unthinkable " to Meyer 
 as it is to Sax. Nevertheless, we may agree with Sax that 
 " equivalence " is a better term than " equality," as being 
 less ambiguous; and that "equivalence of sensation" ex- 
 presses with greater definiteness than "equality of sacrifice" 
 the ideal of distributive justice. 
 
 It is the further boast of Sax that equivalence of sensation 
 for the first time also explains the meaning of justice in 
 taxation. But it is rather a definition than an explanation. 
 Still, the claim is not wholly without its reason. Not only 
 because ability and sacrifice, subjectively considered, are 
 ultimately resolvable into sensation — ability having reference 
 more to the sensation of satisfaction, and sacrifice to the 
 sensation of non-satisfaction ; but also, from the viewpoint 
 of Hedonistic ethics and utilitarian economics, between 
 which sensation — the ultimate fact of consciousness — con- 
 stitutes a uniting bond ; a tertmm comparationis, pleasurable 
 sensation — i.e., satisfaction — being the ultimate end of both. 
 Still more, because of this reference of the economic and 
 ethical to sensation, and because of the competition resulting 
 from the fact that every individual is actuated by the same 
 motives, the same sensations, it is assumed that each indi- 
 vidual determines for himself the reahzation of the ethical 
 
 * Die Progressivsteuer, p. 55. 
 
533] THE ETHICAL BASIS OF TAXATION 197 
 
 ideal — equivalent sensations = equality of sacrifice = taxa- 
 tion according to ability. 
 
 But all this is ideal. The individual does not impose 
 taxes upon himself, but through his representatives, and 
 these representatives can interpret the sensations of their 
 constituents only through objective signs, through the ob- 
 jective conditions that produce the sensations. It is these 
 objective signs, which are not a whit dififerent with Sax from 
 what they are with Wagner or Meyer, that constitute the 
 objective, practical tertium comparationis between ability and 
 sacrifice and explain their meaning, that gives the practical 
 solution to the riddle of the circle. However indefinite this 
 solution may be, it is the only practical one. While, then, 
 Sax may have added to the definiteness of the theory of 
 subjective sacrifice, he has added nothing to the practical 
 solution of the problem of justice. 
 
 5. The Dutch Economists ^ — Accepting " equality of sac- 
 rifice " as the ideal of justice in taxation, the mathemati- 
 cal economists of Holland have gone farther than any other 
 economists in their attempt to give to the idea — equality of 
 sacrifice — precision of meaning. They apparently start from 
 the position of Meyer, that within every group of needs 
 there is the same intensity throughout, together with the 
 fact that the order of the satisfaction of needs varies in- 
 versely with the means of their satisfaction — with income.' 
 That is, only those with the larger incomes can satisfy the 
 least intensive group of needs ; so that that group of needs 
 affected by the tax is necessarily the most intensive of un- 
 satisfied needs, or the least intensive of satisfied needs. 
 
 Assuming, then, decreasing groups, or grades, of needs 
 
 ' Pierson, Cohen-Steuart and Mees. I regret that my knowledge of this school 
 of economists is only second hand, my acquaintance with them being limited to 
 the exposition of Sax in Die Progressivsieuer, already referred to, and to Pro- 
 fessor Seligman's account in his Progressive Taxation, pp. 137-144. 
 
igg JUSTICE IN TAXATION [534 
 
 with each decreasing grade satisfied by correspondingly 
 increasing incomes, we have the fact that the marginal 
 utility of incomes decreases as the incomes increase, since 
 less intensive needs are satisfied by them. Again, with in- 
 comes equally increasing the difference between the intensi- 
 ties of the unsatisfied needs (or the last satisfied), on 
 account of the tax, grows constantly less as the incomes 
 increase ; or the difference between the intensities of unsatis- 
 fied needs is less with the larger incomes than it is with the 
 smaller incomes. Hence, every increment of tax, corre- 
 sponding to an increment of income, has a less marginal 
 utility than the next preceding increment. 
 
 With these facts before us the problem of determining 
 equality of sacrifice is apparently very simple. For all that 
 is now necessary, is to assume a fixed gradation in the de- 
 crease of the marginal utility of every increment of income, 
 and a corresponding decrease in the marginal utility of 
 every increment of tax. Then the sum of the marginal 
 utilities of the different increments of income and of the tax 
 will represent respectively the total utility of income and of 
 the tax. If, now, we divide the total utility of the tax by 
 the total utility of the corresponding income we shall ascer- 
 tain the per cent, that the total tax is of the total income 
 upon which it is assessed. In the same way percentages 
 may be found for every grade of income. In every case 
 this percentage will be the percentage that any given tax 
 bears to the total utility of its corresponding income. The 
 series of percentages thus obtained would measure the sacri- 
 fice that a proportional tax would occasion for every grade 
 
 of income. 
 
 Now it must be very clear, as indeed Cohen-Steuart him- 
 self points out,' that the gradation in the series of percent- 
 ages must depend entirely upon the numbers assumed to 
 ^ See Sax, Die Pro^essivsteuer, p. 76. 
 
535] T^HE ETHICAL BASIS OF TAXATION 199 
 
 represent the marginal utilities of the increments of income 
 and of the tax. Only, however, when the tax is exactly the 
 same per cent, of the total utilities of the different grades of 
 income can equality of sacrifice be attained. To produce 
 this equality, therefore, all that is necessary is, to find such 
 a tax rate as will yield a tax whose total utility divided by 
 the total utility of the income paying the tax will be the 
 same quota for every income. In brief, the tax should be 
 such that the total utility of the tax of every individual will 
 be the same per cent, of the total utility of his income as the 
 total utility of the tax of every other individual is of the 
 total utility of his income. Or, " Tax quota and income re- 
 duced to units of utility must show the same relation to 
 every tax-bearer, since herein consists the equality of 
 sacrifice." ' 
 
 The problem of effecting an equality of sacrifice is, then, 
 the problem of finding such a tax rate for every income that 
 the tax will take the same quota of the total utility of every 
 income. Clearly everything depends upon the series of 
 numbers taken to represent the marginal utilities of the in- 
 crements of tax and of income. But whatever series we 
 may choose, any other series, as Cohen-Steuart admits, 
 would be equally legitimate. Hence, accordingly, it is pos- 
 sible, by a clever manipulation of an arbitrary series of 
 numbers representing utilities, to prove that almost any 
 system of tax rates is necessary to produce an equality of 
 sacrifice — as constant, increasing or decreasing rates. 
 
 But this fact does not shake the faith of Cohen-Steuart in 
 the possibility of a mathematical determination of equality 
 of sacrifice. He therefore thinks to avoid the dilemma by 
 assuming two, instead of one, series of decreasing marginal 
 utilities with increasing incomes ; also that the truth lies 
 somewhere between these two series, which are supposed to 
 ^ Sax, Die Progressivsteuer, p. 57. 
 
200 JUSTICE IN TAXATION [536 
 
 represent the two extremes of possible decreasing utilities. 
 In the series that decreases more slowly the rate of increase 
 is assumed to be inversely proportional to the cube root of 
 the fourth power of the amount of the income ; while in the 
 other series — that having the more rapid decrease — the de- 
 crease is assumed to be inversely proportional to the second 
 power of the amount of the income. From these two rules 
 is deduced the following formula for equalizing the sacrifice 
 of total utilities in the imposition of a tax: " An arithmetical 
 increase of the tax rate with a geometrical increase of 
 income." ' 
 
 Here, indeed, we have the problem reduced to mathemat- 
 ical exactness. But unfortunately Cohen-Steuart proceeds 
 upon assumptions equally arbitrary and equally imaginary 
 with those of the other Belgian economists, whose theories 
 he rejects. All aHke, as Sax says, attempt to prove a truth 
 by groundless assumptions. But, in fact, assumption lies at 
 the basis of every theory of sacrifice, and we may, therefore, 
 conclude with Sax that the sacrifice theory in itself is insol- 
 uble.'' As to his own theory. Sax, of course, believes that 
 he has avoided all assumption, and it must be admitted that 
 his theory contains no such wild assumptions as are found 
 in the Belgian economists. Indeed, his whole theory is 
 based upon one of the most ultimate facts of conscious life- 
 sensation. It is in the development of his thesis that what 
 appears to us unwarranted assumptions make their appear- 
 ance, particularly with reference to the assumed power of 
 the individual over the satisfaction of his collective wants. 
 At any rate, after all the elaborate development of his sub- 
 jective theory. Sax is compelled to conclude that "justice 
 merely forbids that a tax be imposed upon any one that is 
 in contradiction with his economic relations;" 3 in other 
 words, with his " ability." The prevention of this " contra- 
 ' Quoted by Sax, Hid., p. 81. * Hid., p. 83. * Hid., p. 63. 
 
537] THE ETHICAL BASIS OF TAXATION 201 
 
 diction " must be left to the officials of the government — to 
 their " sensations " quite as much as to the " sensation " of 
 the taxpayer. This conclusion is that of every sacrifice 
 theory. 
 
 6. Edgeworth. Another interpretation of the sacrifice 
 theory is given by Professor Edgeworth in his able article on 
 " The Pure Theory of Taxation." ' Sacrifice is accepted as 
 containing the true principle of taxation ; but it is main- 
 tained that neither " equal " nor " proportional " sacrifice — 
 as held respectively by Sidgwick and Cohen-Steuart — cor- 
 rectly expresses the fundamental idea which the principle 
 involves. The true notion of equity in taxation finds its 
 more correct expression in the term like sacrifice, which 
 constitutes the common genus of which "equal" and " pro- 
 portional" sacrifice are but species.^ But " like sacrifice," 
 otherwise expressed, is an equi-niarginal sacrifice, which we 
 take to mean an absolute equality of the marginal utilities 
 sacrificed — the marginal disutilities occasioned — on account 
 of the tax. That these marginal sacrifices, or disutilities, 
 should be at a minimum is an imperative demand of utili- 
 tarian ethics. Hence, an " equi-marginal sacrifice " finds its 
 most perfect expression in a minimum sacrifice, to which 
 principle the true basis of taxation is ultimately reduced. It 
 is not claimed, however, that there is any real opposition 
 between this view and that of "equal" or " proportional" 
 sacrifice. On the contrary, it is intimated that both equal 
 and proportional sacrifice are notions that show a confusion 
 in the minds of their advocates for equi-marginal sacrifice, 
 itself leading to minimum sacrifice.^ 
 
 Like other utilitarian economists Professor Edgeworth 
 assumes as the basis of his argument " the greatest happi- 
 
 ' Economic Journal, vol. vii. This article did not come to my notice until this 
 and the following chapters were written. 
 
 ' Ibid., p. 557. *Ibid., pp. 564-5. 
 
202 JUSTICE IN TAXATION [538 
 
 ness principle," though in a " sHghtly modified " form. That 
 is, in its application to social phenomena, which are not 
 ^determined by competitive action, the principle must be 
 interpreted to mean : not the greatest sum of happiness for 
 each of the two or more parties concerned, taken individ- 
 ually; but "that arrangement which conduces to the great- 
 est sum-total welfare of both parties, subject to the condition 
 that neither should lose by the contract." In other words, 
 in its application to pohtical problems the greatest happiness 
 principle must be understood to mean the greatest sum- 
 total of utility for the community — i. e., of collective utility 
 — not the greatest sum for each individual ; though " in the 
 long run of various cases, the maximum sum-total of utility 
 corresponds to the maximum individual utility." For, " of 
 all principles of distribution which would afford him now a 
 greater, now a smaller proportional sum-total utility obtain- 
 able on each occasion, the principle that the collective 
 utility should be on each occasion a maximum is most likely 
 to afford the greatest utility in the long run to him individ- 
 ually." ' 
 
 Applied to taxation the principle means that taxes should 
 be so distributed that the maximum total net utility will be 
 realized, or the minimum of total disutility For " the con- 
 dition that the total net utility procured by taxation should 
 be a maximum reduces to the condition that the total dis- 
 utility should be a minimum." Hence " it follows in general 
 that the marginal disutility incurred by each taxpayer should 
 be the same." But to produce such an equality would be to 
 level all fortunes, which would produce the result: that 
 " the richer should be taxed for the benefit of the poorer up 
 to the point at which complete equality of fortune is attained." 
 This is, indeed, the acme of socialism, " but it is immediately 
 clouded over by doubts and reservations." * 
 
 ^Economic Journal, vol. vii, p. 552. * Ibid., p. 553. 
 
539] THE ETHICAL BASIS OF TAXATION 203 
 
 These " doubts and reservations " that stand in opposi- 
 tion and modify the logical execution of the minimum prin- 
 ciple, are such as have been noted by Mill, Sidgwick and 
 others : That there would result a lessening of the amount to 
 be distributed, since such a system would inculcate a ten- 
 dency to leisure rather than to industry; that it would result 
 in an increase of population, which would ultimately reduce 
 the amount of wages, both by the increased competition of 
 numbers and by a decrease of efficiency. But further (ex- 
 cept upon the false assumption of an equality of natures), 
 there are different capacities for happiness, which, on the 
 principle of minimum disutility, involves an unequal distrib- 
 ution of the tax. Still further, a progressive rate, which the 
 unmodified principle implies, would produce a check to sav- 
 ing, and so " would check the augmentation of the com- 
 munity's wealth," though this loss is " to be set off against a 
 probable increase of saving among the poorer classes," So 
 likewise the principle of minimum sacrifice justifies dififer- 
 ential rates on account of the size and permanence of incomes, 
 the number of children, age, etc. But with such reservations 
 as the above in the practical application of the principle, it 
 still remains true that minimum sacrifice, the direct emana- 
 tion of pure utilitarianism, "is the sovereign principle of 
 taxation." ' 
 
 And yet this principle affords us no definite data for the 
 determination of rates. The rate must depend upon the 
 relation existing between the decrease of utility and the 
 increase of income. According to Cohen-Steuart the rate of 
 the decrease of the utility is proportional to the increase of 
 the income. Professor Edgeworth, on the other hand, main- 
 tains that the decrease of the former is at a more rapid rate 
 than the increase of the latter.^' But the exact ratio is theo- 
 retically indeterminate. And hence from the view-point of 
 
 ' Economic Journal, vol. vii, p, 556, * Ibid., p. 560. 
 
204 JUSTICE IN TAXATION [540 
 
 pure theory it cannot be determined what rate of taxation 
 would effect a minimum sacrifice. About all that can be said 
 is that the tax rate should be progressive within the limits of 
 the above reservations. 
 
 Such, in brief, are the main points in Professor Edge- 
 worth's interpretation of the " sacrifice theory" as a basis of 
 taxation. And in this restatement important modifications 
 of the theory are made. It is to us, indeed, of no little 
 significance that we have the weight of Professor Edgeworth's 
 authority — himself a utilitarian economist — in support of the 
 contention of the preceding pages : that the principles of 
 private economic activity are not, as supposed by Sax and 
 others, applicable to the economic activity of political or col- 
 lective life.' As Professor Edgeworth points out, the true 
 analogy is not that of economic bargains governed by com- 
 petition, but that of economic agreements between associa- 
 tions of employers and employees ; " where the action of 
 self-interest being suspended by mutual opposition, the 
 more delicate force of amity, which even in economic man 
 is not entirely wanting, may become felt." ^ 
 
 Yet even in its modified form we are not convinced that 
 the sacrifice theory affords a better statement of the basis of 
 taxation than does the ability theory ; nor do we see any 
 reasons for changing our previous criticism of the former 
 theory. In fact. Prof. Edgeworth does not claim to do more 
 than to bring out a little more definitely what was already 
 impHed in Mill, Sidgwick, Meyer and others. At any rate, 
 as we have understood these authors, the marginal sacrifice 
 occasioned by the tax has meant an " equi-marginal " sacri- 
 fice; one in which the tax imposes exactly the same sacri- 
 fice upon every taxpayer, though not of absolutely equal 
 amounts, viewed objectively. Yet " equi-marginal " has the 
 merit of giving us a more definite expression of the idea in- 
 
 1 Economic Journal, vol. vii, p. 551. * Ibid., p. 552. 
 
54l] THE ETHICAL BASIS OF TAXATION 205 
 
 volved. But whether viewed as " equal," " proportiQiial," or 
 " equi-marginal," the conception of sacrifice affords but a 
 most intangible basis for taxation — a basis, as Professor 
 Edgeworth admits, that is hedged by " doubts and reserva- 
 tions." 
 
 Again, it may be admitted from a certain point of view 
 that the procurement of the greatest amount of happiness — 
 or the greatest sum-total of utility, or the minimum of dis- 
 utility — is the true aim of all collective action ; but it is by 
 no means self-evident that this "sum-total" or "minimum" 
 pertains to the collectivity irrespective of the distribution of 
 the "utility" or "disutility" among the individuals that 
 constitute the collective whole. Such a principle is not 
 wholly dissimilar from that which determines monopoly 
 prices, the sum-total of a few utilities of large amounts off- 
 setting a large number of utilities of individually small 
 amounts. True, it is admitted that " in the long run " there 
 is probably the greatest amount of individual happiness 
 when there is the greatest sum-total of happiness ; and so in 
 the long run it is of no practical moment which point of 
 view is considered to be the correct one. Nevertheless, 
 from the point of view of " pure theory" it is by no means 
 clear that the largest sum-total of utility is the true aim of 
 political action. Not only does such a view savor of a col- 
 lective entity, but it assumes as a basis of action a principle 
 that is quantitatively as indeterminable as anything that is to 
 be found in the sacrifice theory of Mill, Sax, or Meyer. A 
 sum-total of utilities has no meaning apart from individual 
 utilities ; and to us a principle that looks merely to the sum 
 of happiness and not to its extent, that permits the large 
 total of the utilities of a few to be set ofif against the large 
 total of the disutilities of many, is not the ideal of social 
 justice. It is not sufficient that the largest sum-total may be 
 consonant with the largest extent of individual happiness* 
 
2o6 JUSTICE IN TAXATION [542 
 
 It may noi be so. For neither logically nor practically is 
 what, is true of the whole necessarily true of the units. The 
 ideal, then, would seem to be the minimum of sacrifice to 
 the greatest number, which in the long run may produce the 
 minimum of total sacrifice. No other supposition is con- 
 sistent with the ideals of democratic institutions, or in har- 
 mony with the conditions of social content. 
 
 That the principle of equi-marginal, or minimum, sacri- 
 fice does not, as we have seen, afford any definite rule for 
 taxation is not perhaps of any importance in itself. But it 
 seems a littie strange that one who is par excellence a 
 mathematical economist should find satisfaction in a theory 
 based upon a principle that does not permit of an exact 
 mathematical expression, since " the reasoning from the 
 principle of minimum sacrifice assumes no exact relation 
 between utility and means." ' Nor is it without significance 
 that he is compelled practically to abandon the subjective 
 principle and to find the determinants of rules of taxation in 
 objective standards — in the economic effects of the tax upon 
 individuals and in the economic conditions of the taxpayers. 
 But in this respect the position of Edgeworth is similar to 
 that of Mill, Meyer and Sax. And finally, it is not without 
 interest that in recognizing that there is no exact ratio 
 between utility and means, Edgeworth has given the weight 
 of his authority against the futile attempts of the Dutch 
 economists to reduce taxation to an exact science. 
 
 IV. Conclusion : Ability versus Sacrifice 
 The preceding discussion on the basis of taxation has 
 throughout implied the fact that the tax obligation rests 
 upon persons, not upon property; that, therefore, the basis 
 of taxation has specific reference to some fundamental princi- 
 ple that attaches to the person, not to his property. Hence, 
 
 * Economic yournal, vol. vii, p. 567. 
 
543] T'HE ETHICAL BASIS OF TAXATION 207 
 
 therefore, the basis of the tax involves two fundamental 
 ideas : the idea, or principle, that expresses the character of 
 the tax obligation of the individual ; and, secondly, the prin- 
 ciple of the universal apphcation of the basis, or the relative 
 obligation of taxpayers. It is the first idea that has been 
 the chief subject of our attention in the present chapter; the 
 second will be the subject of the following chapter. 
 
 The first of these principles — the basis of the idea that 
 expresses the character of the tax obligation — we have 
 found to be comprehended and expressed in two different 
 ways — from the view-point of the ideas contained in the 
 term " ability," and from the view-point of the ideas con- 
 tained in the term " sacrifice." That there is significance in 
 both of these conceptions of the tax basis is not to be 
 denied ; but at the same time we have seen reasons for hold- 
 ing that the idea connoted in the term " ability " more 
 fully expresses the ethical basis for the imposition of taxes^ 
 since it is the relation that most fully comprehends, not only 
 the true relation of the individual to the state, but also the 
 ethical relations of the individuals in the state ; is most ex- 
 pressive, that is, of the fact that the obligation rests upon 
 persons. Ability, as we saw, is expressive of the idea of 
 positive, active participation in the expenses of the state^ 
 corresponding to the positive, active participation in the 
 ends of the state. It is expressive, too, of the voluntary 
 character, or aspect, of tax contributions ; of the idea of 
 duty, not of compulsion. 
 
 On the other hand, we have seen that sacrifice is a nega- 
 tive concept ; that it expresses a denial, a sacrifice of per- 
 sonal satisfactions, though, it is true, for higher satisfactions 
 that are common with self and others. It also contains 
 more the idea of compulsion — the compulsory aspect of 
 taxation. Undoubtedly there is truth in this view of the 
 tax, for every tax necessarily involves a sacrifice — a conv- 
 
2o8 JUSTICE IN TAXATION [544 
 
 pulsory sacrifice — of personal satisfactions for the sake of 
 the realization of collective satisfactions. And it is true, 
 too, that this idea of sacrifice is of a distinctly ethical char- 
 acter; of a character, too, that is complementary of the 
 ethical idea contained in " ability," 
 
 But while all of this is true, the idea of sacrifice does not 
 so clearly and fully represent the nature of the ethical basis 
 — itself based upon the nature of the state — as does the idea 
 of ability ; for while it is true that from the view-point of 
 individual wants a sacrifice is involved, from the larger view- 
 point of the complete whole of the individual there is no 
 sacrifice in taxation, but only effort towards the fulfilment of 
 the conditions of the more perfect realization of self. 
 
 But, again, equality of sacrifice is a refinement of justice 
 that it is inconceivable the state should ever realize ; for 
 equality of sacrifice — relatively equal loss of enjoyments, 
 = equivalent painful sensations — are conditioned not only 
 by property conditions, but by individual character, habits, 
 sensibilities, ideals, etc. Equivalence of sacrifice — of feel- 
 ings, of sensations — is an ideal conceivable only from the 
 view-point of individuals as a whole, in their ethical relations 
 to each other. For ourselves, we cannot conceive it as an 
 ideal which it is any part of the duty of the state to fulfil.^ 
 The ends of justice are satisfied when the objective econ- 
 omic conditions, or the objective effects, are made relatively 
 the same by the tax. Or, again, when the tax is adjusted 
 to the ability to support the state relatively to the ability to 
 meet the demands of the wants of the self. 
 
 Accepting, then, ability as the best expression of the 
 ethical basis of taxation, though at the same time recogniz- 
 ing the truth contained in the idea of equality of sacrifice, 
 we have next to inquire what principles flow from this basis. 
 
 ' " In framing an ideal," says Aristotle, " we may assume what we wish, but we 
 should avoid impossibilities." Politics, ii, pp. 6, 7. 
 
545] THE ETHICAL BASIS OF TAXATION 209 
 
 That is, since the primary element in the determination of 
 ability (as, indeed, also, of sacrifice) is property, or more 
 strictly, income, we have to inquire into the nature of the 
 qualifications and limitations of the taxation of income that 
 are demanded, in order to meet the requirements of taxation 
 according to ability; or, again, what principles should con- 
 trol the taxation of income so that the tax may meet the 
 demands of justice. It is not simply or chiefly the ability 
 of income to pay taxes relative to its ability to satisfy per- 
 sonal wants, but it is a question of the relative ability of 
 different incomes under different conditions and circum- 
 stances ; hence, of the principles that should determine the 
 taxation of income under these different conditions and cir- 
 cumstances. Most important among the conditions deter- 
 mining the ability of income, that is, the ability of its 
 possessor, is the character, source, and size of income ; and, 
 therefore, whether the income should be taxed at different 
 rates according to these circumstances in order to meet the 
 just requirements of taxation according to ability. Finally, 
 whether under any circumstances consideration should be 
 given to the needs of the individual as against the demands 
 of the state. That is, whether there are circumstances in 
 which exemptions may be allowed without infringing upon 
 the principles of ability and universality. 
 
CHAPTER VII 
 
 ETHICAL PRINCIPLES OF TAXATION 
 
 By the ethical principles of taxation I have in mind those 
 principles that are deducible from the ethical basis of taxa- 
 tion ; the principles in accordance with which the tax burden 
 must be distributed to meet the highest requirements of 
 justice. It is the problem of determining the principles that 
 will give realization to the ideal of taxation based upon 
 ability. These principles should not be based upon mere 
 sentiments, or upon mere abstractions. To have consistency 
 and value they must be developments, not only of the impli- 
 cations contained in the idea of " ability to pay," but must 
 be developments, also, of the theory of the state, on which 
 is based the whole theory of justice in taxation. Or these 
 principles, again, should be developments of the meaning of 
 " ability," whether they take the form of positive principles, 
 or of exceptions to general rules. Exceptions to general 
 rules there may be, but not exceptions to the fundamental 
 idea — taxation according to ability. The exceptions, as 
 well as the rules, or principles, must be logically contained 
 in this idea. This distinction is important, but is almost 
 universally overlooked, thereby leading to inconsistent con- 
 clusions, as we shall have occasion to see. 
 
 The development of these principles, which involves the 
 development of the principles of a just distribution of the tax 
 burden, is one of the most difficult problems within the 
 whole field of taxation, and one upon which there is, per- 
 haps, the most diverse opinion. But notwithstanding these 
 differences of opinion, there is common agreement among all 
 2IO [546 
 
547] ETHICAL PRINCIPLES OF TAXATION 211 
 
 schools of economic thought that justice demands that the 
 tax should be distributed equally and universally. These 
 two principles — Equality and Universality — , which are 
 recognized as logical deductions of both the ethical and the 
 economic basis of taxation, are regarded even more as the 
 two cardinal principles of justice in taxation — of taxation 
 based upon ability to pay. For, since the ends for which 
 the state exists are common to all, justice requires that every 
 member of the state, indeed every person that participates in 
 its ends, should contribute to its support to the extent of his 
 ability, relatively, of course, to the ability of others. The 
 same conclusion is reached if the obligation to pay taxes is 
 considered from the viewpoint of the ethical relations of the 
 membership in the state, of the character of the members as 
 persons. For this ethical view of the question demands 
 above all "equality" of taxation, but equality implies uni- 
 versality. 
 
 These conclusions are not new. But what we wish to call 
 attention to here is that the principles of Equality and Uni- 
 versality as ethical principles, being viewed from a different 
 standpoint from what they are as political or economic prin- 
 ciples, lead to different, and, indeed, to more definite con- 
 clusions. Politically, for example, the meaning of " equality " 
 is vague, while the principle of universality stands unqual- 
 ified. Ethically we find that both principles are conditioned' 
 by " ability," and that, therefore, they may need qualifica- 
 tion and limitation. In other words, the ethical contents of 
 these principles supplement and complete their political and 
 economic contents. Indeed, we might say that they are 
 political and economic principles only because of the ethical 
 implications involved in the political and economic bases of 
 taxation. At any rate, it is in the development of the con- 
 tent of these principles that we develop the content of the 
 ethical basis of taxation — taxation according to ability. 
 
212 JUSTICE IN TAXATION [548 
 
 I. The Principle of Equality 
 
 That equality in taxation means a relative equality few will 
 deny.' It means that there should be the same relative 
 economic conditions after as before the tax. Viewed with 
 respect to ability to pay it means that there should be the 
 same relative economic ability after as before the tax for the 
 satisfaction of personal wants. Subjectively considered — 
 as equality of sacrifice — it means that there should be the 
 same relative intensity of feeling of wants unsatisfied because 
 of the tax; or, if you will, of the wants last attaining satisfac- 
 tion. Or, again, since income is the primary factor in the 
 determination of (objective) ability, equality in taxation 
 means that the tax should take such portions of income as 
 will leave the same relative amounts for the satisfaction of 
 private needs, their objective importance, or their subjective 
 intensity being considered ; or it means that income should 
 be so distributed between the satisfaction of collective and 
 private needs — between public and private expenditure — 
 that there shall be the same proportional satisfaction, the 
 same proportional expenditure, for each when viewed with 
 reference to their relative importance, or their relative 
 intensities. 
 
 The problem of realizing equality m taxation, therefore, is 
 a problem of the just distribution of taxes, or of the just 
 distribution of income between collective and private wants. 
 The question, then, resolves itself into this, What propor- 
 tions of different incomes must be taken so that the tax may 
 be proportioned to ability, and thereby a relative equality be 
 established? In other words, in distributing the tax so as to 
 
 ' Von Hock, as we have seen, makes exception of the tax for the protection of 
 the person, which he thinks should be absolutely equal. The tendency of com- 
 munism, too, is to make the burden of the government absolutely equal. And even 
 such an individualist as the late Thomas Davidson once questioned, in conversa- 
 tion with the writer, whether all taxes should not be absolutely equal. 
 
549] ETHICAL PRINCIPLES OF TAXATION 213 
 
 realize a relative equality according to ability, Should there 
 be the same rate, the same proportional tax, for all incomes? 
 Or, Does the " equality " necessitate different rates accord- 
 ing to the size, character, and amount of income? For if 
 these affect the ability they must likewise affect the rate. 
 
 I . Rate and Source of Income. It is the belief of many 
 writers on taxation that the ability to pay taxes is very 
 largely affected by the source of income, and that, therefore,, 
 there should be differential rates according as the income is 
 "funded" or "unfunded," is derived from inheritance, from 
 monopoly, from " quasi-rents," or from speculation. In 
 practice, however, but little consideration has been given to 
 the source of income.' Let us examine briefly the grounds 
 for such distinctions, that we may see to what extent ability 
 is affected by the source of income, and thereby differential 
 rates are justified. 
 
 (i) Funded and Unfunded Incomes. According to Mill, « 
 funded income, or income from property, has a greater tax-| 
 ing ability than unfunded, or personal income, because of its 
 greater permanence.^ Wagner assigns two reasons — because 
 funded income leaves the entire labor power wholly, or for 
 the most part, free for other acquisitions ; and because per- 
 sonal income has more necessary expenses to meet, such as 
 provisions against sickness, old age, etc.3 With Meyer the 
 only basis of distinction is, that " property is not only and 
 not always a source of income, but it may be immediately 
 applied for the satisfaction of needs " * in emergency cases. 
 
 As to the argument of Mill, it contains only a partial 
 truth. For, as far as life incomes are concerned, the 
 economic necessities of the business world and the growing. 
 
 1 The Italian income tax is a partial exception. Cf. L. Say, op. cit., ii, p. 152. 
 
 ^ Mill, Polit. Econ., v. 2, § 4. 
 
 ' Op. cit.y ii, p. 56. Cf. also Neumann, Die Progressivsteuer, p. 178. 
 
 * Op. cit., p. 326. 
 
214 JUSTICE IN TAXATION [550 
 
 Civil Service provisions of governments tend to a per- 
 manency of salaried positions that makes unfunded incomes 
 not a whit less permanent than funded incomes. In fact, 
 many personal incomes are more permanent than property 
 incomes ; and besides, there are degrees of permanence in 
 both.' So far, then, as the difiference is due to a difference 
 in the permanence of income it is a question pertaining to 
 the character, not to the source, of income. 
 
 The second argument of Wagner is but a fuller statement 
 of the argument of Mill, for it is the assumed temporary 
 character of personal income that necessitates a larger out- 
 lay to provide against future needs.^ So far as this argu- 
 ment relates to perpetual family income it contains, indeed, 
 much force of reason ; for of two equal incomes there is un- 
 doubtedly greater tax ability in the perpetual, than in a life, 
 and still more than in a temporary, income. But this, 
 again, is a question of the character, not of the source of 
 income. 
 
 As to the first argument of Wagner, the primary conten- 
 tion is true, but the conclusion unwarranted. If, for 
 example, A and B have each a personal income of $1000, 
 and A has in addition a funded income of $1000, it is no 
 reason in itself why A should pay a higher rate on his 
 funded income. He simply has twice the income that B 
 has, and if his ability is more than proportionately increased 
 thereby, it is due to the size of his income relatively to his 
 needs, as compared with the size of the income of B relatively 
 to his needs. In determining A's ability it is of no impor- 
 tance that he is free to earn a personal income in addition 
 to his property income, unless, indeed, we accept Walker's 
 theory of potential ability. So far as this particular argu- 
 
 ^ Cf. Meyer, ibid., p. 327. 
 
 * To Sax this is theonly ground for a differential tax on funded incomes. Cf. 
 Grundie^unft'p. $14. 
 
5 5 I ] ETHICAL PRINCIPLES OF TAX A TION 2 I 5 
 
 ment is concerned — i. e., leaving aside other characteristics 
 of funded incomes — the question is simply one of the size of 
 A's income as compared with B's, and consequently of his 
 relative ability. This question will be considered presently. 
 
 The position of Meyer is equally untenable, and, besides, 
 if it is not inconsistent with the declaration of the preceding 
 page, that as there is practically no difference in the per- 
 manency of funded and unfunded incomes there is in this 
 respect no difference in ability, it represents, at least, a con- 
 fusion of ideas. For the real comparison is between differ- 
 ent sources of income, whereas with Meyer it is virtually 
 between income and property. Or, more strictly, his com- 
 parison is between those who have property but no income, 
 and those who have neither property nor income. Be this 
 as it may, it is quite true that as between the possessor of a 
 funded and the possessor of an unfunded income, the former 
 can continue satisfying his needs, presumably also his collec- 
 tive needs, after income ceases, while the latter can not. But 
 this advantage is in the possession of property, not in a par- 
 ticular kind of income ; since the incomes being assumed to 
 have equal permanence represent, as incomes, equal ability. 
 But if the mere possession of property gives greater ability to 
 pay taxes, it must exist whether or not the property is yielding 
 an income, and must exist so long as there is private prop- 
 erty ; and at the same time differ in degree among different - 
 property holders according to the amount of property pos- 
 sessed. But this "ability" could be reached only by a 
 real tax on property, and by such dififerential rates that it is 
 difificult to see where they would stop short of confiscating 
 all private property, or equalizing its possession — as com- 
 pared, of course, with the non-income receiver. 
 
 Upon the whole, then, we must agree with Sax, that the 
 only reason that a funded income gives a greater ability than 
 an unfunded income is, because it does not necessitate the 
 
2i6 JUSTICE IN TAXATION [552 
 
 same saving to provide against future needs.' The posses- 
 sion of property may, indeed, have this same advantage, but 
 only in a very Hmited way, since in most cases it would soon 
 be exhausted. It is not a taxable advantage. Property 
 itself gives a tax ability not because it may be used to satisfy 
 future wants, but because it has the power of yielding a 
 future income to satisfy future wants. This advantage, how- 
 ever, is limited in scope, and has special application only to 
 perpetual incomes, for reasons previously given. 
 
 (2) Inheritance and Gifts. That inheritance of property 
 (including bequests) and gifts tend to increase the tax 
 ability of the recipient no one can safely deny. At the same 
 .time it must be admitted also, that there are many cases 
 where an inheritance, or a bequest, carries with it a de- 
 crease of ability, if we consider the family as the taxable 
 unit ; for with the inheritance or bequest there is a loss of 
 the salary of the head of the family.'^ But so far as there is 
 a real addition to the tax ability of the recipient it is not to 
 be measured by the amount of the inheritance as in itself an 
 additional income, for I cannot regard an inheritance as a 
 true income. It may be a source of new income to the 
 inheritor, but it is not itself income. The ability, therefore, 
 is increased only to the extent of the income-producing 
 power of the property inherited. This ability is not con- 
 fined to the year of the inheritance, but lasts as long as the 
 income from it lasts. In fine, the increased ability resulting 
 from an inheritance is confined solely to the effects of the 
 inheritance upon the income of the inheritor, either with 
 respect to its annual increase in size or to its funded, or 
 perpetual, character. 
 
 The same holds true of gifts, particularly of productive 
 property. In the case of money gifts for defraying living 
 
 ^ Cf. also Cohn, op. cit., p. 359. 
 
 " Cf. West, The Inheritance Tax, p. 1 18. 
 
553] ETHICAL PRINCIPLES OF TAXATION 217 
 
 expenses, whether occasional or continuous, the gift is justly a 
 part of the annual income. This is true, also, of inheritances 
 or bequests in the form of annuities, or life incomes. If B 
 receives from A $100,000, his ability is increased just to the 
 extent that A's decreases — to the extent of the income-pro- 
 ducing power of the $100,000, no more, no less. , The ability 
 that centered in the personality of A now centers in the 
 personality of B. 
 
 That the increased ability comes gratuitiously is not a 
 matter that can have any weight, so long as the present 
 property relations are sanctioned by the law of the land.' 
 All that justice requires is that the government should ascer- 
 tain the existing tax ability of every taxpayer. To tax the 
 inheritance or gift, other than as specified, is to put a tax 
 upon capital, though not, it is true, upon the national capi- 
 tal.' The tax should be on the income, not on the property, 
 if it is to be a tax on ability. That an inheritance tax may 
 be justified for other reasons, as compensatory for evaded 
 taxes, payment for special services, etc.,3 we would not deny, 
 but we cannot agree with Meyer that a tax on inheritance is 
 justified on the ground of greater tax ability ,♦ for this ability 
 is amply reached, to the ends of justice, by taxing the income 
 from the inheritance, the income being the only ground of 
 the increased ability. 
 
 (3) Monopoly and Quasi-rent Income. At first thought it 
 might appear that a differential tax rate would be justified 
 on monopoly incomes on the ground that such incomes 
 have a special tax ability, relatively to other incomes, since 
 they result from special advantages in income-earning power. 
 
 * Cf. Wagner, per contra, ii, p. 588. 
 
 ' As clearly demonstrated by Mill. Cj. Polit, Econ., v, 2, 7. 
 
 ' For a good summary of arguments for special tax on gifts and inheritances see 
 Max West, op, cit., ch. v. 
 
 * Meyer, op. eit., p. 359. 
 
2l8 JUSTICE IN TAXATION [554 
 
 On account of these advantages, whatever their source, the 
 tendency is to give the holder of the monopoly an additional 
 income above the average of non-monopoly incomes, and so 
 to increase his ability to the extent of the monopoly incre- 
 ment of his income. All this may be true. But this does 
 not give A, with a monopoly income, a greater ability than 
 B has with an equal but non-monopoly income, their condi- 
 tions being otherwise the same. Both A and B, with respect 
 to C with his smaller income, have the same relative advan- 
 tage, the same relative increase of ability. It is simply a 
 question of the size of the income. On the mere ground of 
 abiHty, therefore, the tax rate on A's income should be the 
 same as that on B's income. The fact that it is a monopoly 
 income does not in itself give it greater tax paying ability. 
 
 However, a special tax on monopoly incomes may be 
 justified on other grounds. All monopolies, whether natural 
 or capitalistic,' are at bottom legal or social creations, and 
 society has, therefore, a peculiar claim upon the increased 
 ability resulting from the monopoly increment of income. 
 Particularly is this the case where the monopoly utilizes 
 public property, such as streets, or is in any sense a legal 
 creation (which includes capitalistic monopolies)." It is 
 only justice that incomes due to special privileges of govern- 
 ment should compensate the government for them. That 
 society should absorb the full monopoly increment of income 
 cannot be granted, for it receives back indirectly many 
 advantages from the monopoly, as, for example, from the 
 private ownership of land, or, in the case of capitalistic 
 monopolies, from the concentration of productive wealth 
 
 * Such we understand to be those huge corporations where the concentration of 
 enormous wealth under one management makes possible a control over prices. 
 Examples: The Standard Oil Company, the United States Steel Corporation, 
 though both are partly, also, natural monopolies. 
 
 * Which, by their incorporation, become, in a sense, legal monopolies. 
 
5551 ETHICAL PRINCIPLES OF TAXATION 219 
 
 under the management of the most efficient and competent 
 entrepreneurs. 
 
 The case is very similar where the income is due to social 
 conditions more than to personal effort, as is the case with 
 " unearned increments." Of this class " ground rent" is the 
 best example. Here the " unearned increment " — rent — is 
 peculiarly a social product, and society has, therefore, a 
 peculiar claim upon it. We are not prepared, however, to 
 concede that society should claim the whole of the unearned 
 income — the " ground rent;" both because society indirectly 
 receives many advantages from this private " monopoly," 
 and because it would tend, in many cases, to discourage the 
 most efficient use of the land. But, in any case, society 
 cannot justly absorb the " unearned increment" of the past, 
 or its capitalized value ; for in most cases the rent, to the 
 present holders, is not an "unearned increment," but inter- 
 est on capital invested. Still, it must be admitted that 
 society has a special claim to this class of income, not only 
 because largely a social product, but because society, as 
 Henry George rightly claims,' has a just claim upon the soil. 
 But a differential tax is not justified on the ground of a 
 peculiar ability, other than that which comes from the size of 
 the income. 
 
 Much the same conclusions follow with respect to " quasi- 
 rent " — to ^«^^/-monopoly income. To the extent that 
 income is increased by means of these " rents " there is an 
 increase in tax ability, but the ability to pay taxes is not 
 increased by the mere fact that any part of the income has 
 its source in a " guast-rent." But on the other hand, there 
 is not the same ground for a differential rate, or a special 
 tax, upon the income of " qi^asi-rents" as there is upon pure 
 monopoly income, both because it results more from per- 
 
 * C/. Progress and Poverty, B. vii, ch. i. 
 
220 JUSTICE IN TAXATION [556 
 
 sonal efficiency than from social causes,' and because such a 
 tax would have a more immediate and more direct effect 
 upon production and consumption. As Professor Ross 
 holds, a tax on the "consumer's rent" would tend to lessen 
 consumption and thereby work injuriously. But the con- 
 tention of Professor Ross that the "producer's rent" is a 
 specially good subject for taxation, since such a tax would 
 curtail production least,' can be accepted only with qualifica- 
 tion. It may be true with respect (to monopoly rent, but a 
 special tax upon the "producer's rent," as "profits "3 of the 
 entrepreneur, would be in effect a penalty upon individual 
 capacity and efficiency in production, and would tend to cur- 
 tail production. 
 
 (4) Income from Speculation. We need not stop to dwell 
 on the income from speculation. It does not differ from 
 other income in its abihty-giving power. It involves large 
 risks and may result in large returns, and it is the size of 
 these returns that determines the tax ability, so far as this is 
 effected by income. But there are different kinds of specu- 
 lation, and the question whether there should be a differen- 
 tial tax upon speculative profits must be decided in each 
 case according to circumstances. In some cases, as in 
 illegitimate speculation, a special tax may be demanded for 
 police purposes, but in no case does speculative income 
 carry with it any special tax ability. On the contrary, such 
 income tends to give less ability on account of the possibility 
 of its loss in the immediate future. 
 
 Upon the whole, then, we find no reason for holding that 
 the ability of any person to pay taxes is affected by the 
 source of his income. The mistake of those who hold to the 
 contrary is due, we think, to their attaching ability to the 
 
 * The "quasi-rent " of capital would be a partial exception. 
 •Ross, "A New Canon of Taxation," in Polit. Set. Quart., vol. vii. 
 
 • See Walker, Political Economy, bk. iv, ch. 4. 
 
557] ETHICAL PRINCIPLES OF TAXATION 221 
 
 object of the tax — the income — rather than to its subject — 
 the person. As Vocke says, " The tax on the basis of real 
 abiHty knows no object, but only a subject and a measure. 
 The subject is constantly changing, let the source of the 
 income be where it will."' In other words, income deter- 
 mines ability only so far as it relates to the satisfaction of 
 wants — future as well as present. This satisfaction is not 
 influenced by the source of income, but only by its character 
 and size, or by source only as character and size of income 
 are reflected in the source. 
 
 2. Rate and Character of Income. By the character of 
 income is understood, whether it is permanent and secure, 
 or temporary and precarious. Do, now, these character- 
 istics of income produce differences in tax paying ability 
 that justify differential rates? Not, it may be answered, 
 the characteristics per se. From the viewpoint of income 
 alone it is of no consequence to ability whether the income 
 be permanent or temporary. If permanent it pays taxes 
 permanently, if temporary it pays taxes temporarily.' These 
 characteristics assume importance only because of their in- 
 fluence upon the satisfaction of future wants. Mill, for 
 example, held that permanent incomes should be taxed 
 more highly than temporary incomes, and temporary more 
 highly than precarious, for the reason that temporary, and 
 still more precarious, incomes have to make larger outlays 
 to provide against future wants — sickness, old age, etc.' 
 This is a very commonly accepted doctrine, and is, as we 
 have seen, the only ground for the assumption that funded 
 incomes give a greater ability than unfunded incomes.* 
 
 This position we believe to be theoretically sound, for 
 since the taxpayer is a person it is necessary and just that 
 his future needs be taken into consideration in relation to 
 
 » op. cU., p. 465. » Cf. Vocke, ibid. 
 
 ' Mill, Political Economy, v. 2, § 4. * See also Vocke, p. 466. 
 
222 JUSTICE IN TAXATION [558 
 
 the probabilities of this future means for their satisfaction. 
 Practically, however, allowance for future demands on 
 present incomes leads to grave difificulties. To begin with, 
 the theory assumes that every person who receives a tem- 
 porary or precarious income saves a part of his income and 
 invests it in insurance, or otherwise, to provide for future 
 wants. Or, if actual saving does not take take place, it is 
 presumed that it ought to take place. But admitting that a 
 part of the income is saved to provide for future wants, it 
 follows that there is proportionately less income to satisfy 
 present wants, and therefore less tax ability. This is too 
 self-evident to need illustration. If, then, such ' savings ' are 
 justified it follows, on the ground of tax ability alone, that 
 they should be exempted from taxation ; or, what amounts 
 to the same thing, that temporary incomes, from which 
 savings are made for the future, should be favored by differ- 
 ential rates. But it is believed, that not only is such saving 
 justified from the viewpoint of the individual, but that it is 
 sound political policy to encourage it, lest the receivers of 
 temporary incomes (still more of precarious incomes) may 
 become future public charges. 
 
 But upon what basis of savings should such differential 
 rates be established? To base them upon actual savings 
 would admittedly be a most difificult problem in practice. 
 Accordingly, Mill thinks that " the next best thing in point 
 of justice" is "to take into account in assessing the tax, 
 what the different classes ought to save." ' This we believe 
 to be a very questionable solution of the difficulty. It 
 opens up at once most perplexing problems. Unless what 
 is exempted is actually saved there results the injustice of 
 what is virtually regressive taxation, equal incomes being 
 taxed at different rates. But above all, it raises the query, 
 How much "ought" one to save from a temporary and a 
 
 * Political Economy, v, 2, § 4. 
 
559] ETHICAL PRINCIPLES OF TAXATION 223 
 
 precarious income for future needs? It must, of course, 
 bear some relation to the amount of the income and to the 
 accepted standard of life. But whatever the amount pre- 
 sumed to be saved, no government could consistently, or 
 justly, exempt from taxation what " ought " to be saved 
 unless the saving was enforced by compulsory insurance, or 
 in some other manner. To exempt any portion of a tem- 
 porary income, on the assumption that it is saved to provide 
 for future needs, would be grossly unjust if the exempted 
 income is squandered on present pleasures. No ! To 
 accept what ought to be saved as the standard makes it 
 obligatory upon the government to see that the actual 
 corresponds to the ideal. 
 
 Nevertheless, admitting the justice and right of " savings" 
 from temporary incomes, we believe that the theory of eco- 
 nomic ability requires that there should be difTerential rates 
 in favor of those incomes from which savings are actually 
 effected. But we cannbt agree with Mill, that the basis of 
 such rates should be what one " ought to save." Not that 
 we fear any bugbear of " paternal socialism," nor because 
 we think the government would thereby overstep the limits 
 of its functions (for these we have seen to be relative') ; but 
 because consideration of the actual savings is not only all 
 that is required by theoretical justice, but because, in spite 
 of the practical difificulties, rates based upon actual savings, 
 we believe, would approximate most nearly to the ideals of 
 justice. Nor is it any argument against differential rates on 
 temporary incomes that they pay taxes only temporarily, 
 while permanent incomes pay taxes permanently."" The 
 argument rests upon the old fallacy that a tax is upon the 
 income, or property, not upon the person, and that mere 
 income is the measure of ability — a fallacy that is at the 
 
 ' See ante, pp. 26, 27 and 52. 
 
 ' See, for example, Perry, op. cit., p. 519. 
 
224 JUSTICE IN TAXATION L560 
 
 root of many false solutions of tax problems. Once com- 
 prehend that only the individual, the person, can be the 
 subject of a tax and the way is cleared to a more easy solu- 
 tion of many tax problems. 
 
 But dififerential rates, or exemptions, on account of the 
 savings from temporary incomes for future needs, involves 
 or implies an important consequence : That it is the right of 
 the individual to provide for his future, and therefore, also, 
 of necessity, his present, necessary needs before he is under 
 obligation to contribute to the support of the state. Though 
 a debatable question I believe the conclusion to be sound, 
 but we may best discuss this phase of the question when we 
 come to tax exemptions. 
 
 3. Rate and Amount of Income. Of far greater import- 
 ance than the source or the character of income, in the de- 
 termination of the ability of the taxpayer, is the amount of 
 the individual income received. Normally income is both 
 'i the means by which we satisfy our economic wants and the 
 source of our tax contributions. The ability to pay taxes is, 
 therefore, conditioned by the ability to satisfy our personal 
 .wants, but this latter ability in turn is necessarily conditioned 
 ' by the amount of income at our disposal. Clearly, then, the 
 i amount of taxes that one can pay is conditioned by the 
 amount of his income, other conditions remaining equal. 
 «This no one will deny. But we have found that justice re- 
 quires that taxes should be based upon relative ability, that 
 the burden should be equal; or that such portion of each 
 income should be taken for taxes as will leave the same 
 relative ability to satisfy wants after as before the tax. 
 Hence the first principle of justice in the distribution of the 
 tax is that taxes should be imposed in proportion to the 
 ability to pay. But ability, we have said, is relative to the 
 amount of income. The question before us, therefore, comes 
 to this : In what ratio must incomes be taxed, with respect 
 
56 1] ETHICAL PRINCIPLES OF TAXATION 225 
 
 to their size, in order that the tax may be proportional to 
 ability — that a relative equality in taxation may be estab- 
 lished? 
 
 The answer to this question is by no means a simple one 
 Indeed, to determine what portions of incomes of different 
 sizes must be taken as a tax, in order to effect a true pro- 
 portion according to ability, is perhaps the most difficult 
 problem within the whole field of tax distribution. It is 
 certainly a crucial problem, and its answer supplies the basic 
 principle of just taxation — the just rate of taxation on in- 
 come. This has no reference to an income tax. By income 
 we mean the total income of the individual, whatever may be 
 its source. There may without any injustice be different 
 rates on different species of income, or property, either for 
 administrative purposes or otherwise. The question, how- 
 ever, is: What should be the average rate for the total income 
 if taxation is to be according to ability? In other words, 
 In what measure does ability vary with the size of the income? 
 The idea of absolute equality in taxation being excluded, 
 except in communistic or socialistic societies, we have left 
 the possibilities that ability varies regressively, proportion- 
 ally, progressively, or degressively with income. But re- 
 gressive taxation — an increasing rate with a decreasing 
 income — is not less absurd than the idea of absolute equality, 
 and, in fact, is contended for by no one ; though particular 
 forms of regressive taxes are found in all countries, and are 
 not necessarily inconsistent with justice. Degressive taxa- 
 tion — proportional on all income above a fixed limit, pro- 
 gressive backwards from the same limit — is, in effect, a mild 
 form of progression, being a decreasing progression on the 
 total income until the rate becomes practically, though 
 never theoretically, proportional. It rests, however, upon 
 somewhat different grounds from the progressive tax and 
 arises from exemptions, and may, therefore, better be con- 
 sidered in connection with universality in taxation. 
 
226 JUSTICE IN TAXATION [562 
 
 We have left, therefore, proportional and progressive tax- 
 ation, and the problem is to determine which of these plans 
 most fully realizes equality in taxation — taxation propor- 
 tional to ability. It will not be necessary, for our purpose, 
 to go into an extended discussion of every phase of pro- 
 portional and progressive taxation, but we may say in 
 general, that conclusions respecting either system de- 
 pends upon our theory of the state, our conception of the 
 ethical basis of taxation, and not less upon consistent and 
 logical deductions.' In general, those who uphold the pro- 
 tective theory of the state and the benefit theory of taxation 
 advocate proportional taxation, while supporters of what has 
 here been called the ethical theory of the state, and of the abil- 
 ity theory of taxation, tend to the advocacy of progressive tax- 
 ation.'' To the former class belong the English, the French 
 and the earlier German economists; to the latter, the later 
 German economists and those who have come under their 
 influence, 
 
 (i) Proportional Taxation. Proportional taxation is, I 
 think, the logical tendency of the protective theory of the 
 state and of the benefit theory of taxation, for these theories 
 put a property value upon the protection and assume that 
 the benefit of the protection is proportional to the property, 
 or revenue, " enjoyed under the protection of the state." 
 At the same time the conclusion is little more than tauto- 
 logical. If, however, we assume as would seem to be quite 
 as true, that the benefit of the protection has a proportion- 
 ately greater value for the poor than for the rich, relatively 
 to their incomes, regressive taxation would be the logical 
 
 * For a careful review of the relation of tax rates to the basis of taxation, see 
 Seligman, Progressive Taxation. 
 
 ' Exceptions are, in the main, due to a confusion, or to an unconscious identi- 
 fication of the ability and benefit theories, or to considering the tax from the view- 
 point of income instead of the person. 
 
563] ETHICAL PRINCIPLES OF TAXATION 227 
 
 consequence.' If, on the other hand, we regard the benefits 
 of government as measured by the subjective sacrifice 
 occasioned by the loss of satisfactions on account of the tax, 
 progressive taxation would seem to be the logical result, 
 since the intensity of the unsatisfied wants would decrease 
 as incomes increase. If cost of service, instead of value of 
 service were considered as the basis of the tax, I am inclined 
 to believe that regressive taxation would be logically de- 
 manded.^ But the fact is that the benefit theory affords no 
 fixed basis for determining the rate of taxation. The ad- 
 vantages of government are qualitative, and therefore, as 
 Professor Seligman says, " quantitatively immeasurable." 3 
 
 But we have already discarded the benefit theory of taxa- 
 tion, and have, therefore, to consider proportional rates only 
 in their bearing upon the relative " ability " of taxpayers. 
 The question, therefore, is, Is ability proportional to in- 
 come? But few economists of note answer the question in 
 the affirmative.4 With 'those who do, either the benefit 
 theory is lurking in the background, or else ability and in- 
 come (or property) are assumed to be equivalents 5 — income, 
 not the person, being regarded as the subject of the tax. 
 Marzano, for example, writes : "I firmly maintain that the 
 proportional tax is consonant with justice, for the simple 
 reason that the contributive faculty, of which income is the 
 concrete and actual expression, does not increase otherwise, 
 than in proportion" {i.e.,io income).^ This, indeed, is 
 
 ' Cf. Roscher, op. cit., p. 191; Mill, Polit. Econ., v, 2, § 2; Parieu, TraiU des 
 Impots, i, p. 87; Menier, op. cit., p. 215. 
 
 » Cf. Madam Royer, op. cit., pp. 36-7. Per contra, Sismondi, op. cit., p. 155. 
 
 ^Progressive Taxation, p. 85. * Cf. Seligman. ibid., pp. 150-3. 
 
 'See, for example, Parieu, Traite des Impots, vol. i, p. 134, for both defects. 
 The same errors, 1 think, are also found in L6on Say and Leroy-Beaulieu. 
 
 * Marzano, Compendia di Scienza delle Finanze,"^. 122. So, likewise Baer: 
 " II criterio per giudicare della parita delle condizione, o di loro rapporto in piu o 
 meno, non puo essere altro che quello dell' importan.'^a delle sostanze, dell' avere, 
 di beni che si posseggono." Op. cit., p. 19. 
 
228 JUSTICE IN TAXATION [564 
 
 really the only logical argument for a proportional tax, from 
 the view-point of ability. But it is either a petitio principii, 
 or it is tautological. Income and ability are made inter- 
 changeable. No consideration is given to the personality of 
 the taxpayer, to the relation between income and wants. 
 
 This criticism is seemingly forestalled by Marzano in the 
 further argument, that, since the demand of advancing 
 civilization increases wants in the same proportion that in- 
 come increases, the tax should be proportional.' By impli- 
 cation the satisfaction of wants measures ability, but the 
 wants are assumed to increase proportionately with income, 
 and so, also, is ability. The argument is specious, but not 
 sound. It is far truer, I believe, that with advancing civiH- 
 zation wants increase at a more rapid rate than income or 
 wealth increases. Wants increase directly with education 
 and culture, with moral and spiritual growth, but while it is 
 true that the development of these is very largely condi- 
 tioned by the growth of wealth (and so of income), it is not 
 true that their development is necessarily directly propor- 
 tional to the growth of wealth. Rather do they develop 
 progressively. Hence, wants thus viewed in their relation 
 to income would seem to demand regressive rather than 
 proportional taxation. 
 
 But if by " wants" Marzano means " efficient wants" his 
 argument is not less ineffective. It is true, in that case, that 
 the power of satisfying our personal wants increases propor- 
 tionately with income, but ability is not merely a question 
 of the relation of income to the satisfaction of personal 
 wants. Ability to pay taxes has reference to the relative 
 ability to satisfy personal and collective wants, as compared 
 with the like ability of others. Because, then, if there were 
 no taxes our abihty to satisfy our increasing personal wants 
 would be proportional to our increasing income, it does not 
 
 ^ Cf. Marzano, pp. 124-5. 
 
565I ETHICAL PRINCIPLES OF TAXATION 229 
 
 follow that our ability to pay taxes maintains the same pro- 
 portion. For, while wants increase with advancing civiliza- 
 tion, and " efficient wants " with increasing income, collective 
 wants — the demand for efficient government — increase in 
 even greater proportion, become of their relatively greater 
 importance. Hence, from this point of view the tendency 
 would be towards a progressive, rather than a proportional 
 tax. However, the question of ability is not a question of 
 increasing wants with growth in civiHzation, and consequent 
 increase of incomes, but whether, under existing conditions, 
 ability increases proportionately with income. This can be 
 maintained only by the first argument of Marzano, the inval- 
 idity of which we have pointed out above. Besides, though our 
 individual wants increase with the increase of our individual 
 incomes, or our wealth, our collective wants increase in an 
 even greater ratio. Or, apart from the question of the value 
 of life, which may be assumed to be the same for all, our 
 wants, deprived of satisfaction on account of the tax, become 
 of relatively less importance as our wealth increases, as com- 
 pared with the wants of government. Hence, from this 
 view-point the relative ability of large and small incomes is 
 evident. We shall, however, consider this phase of the 
 question more fully in connection with progressive taxation. 
 
 The weakness of the argument for proportional taxation, 
 as a logical deduction of the theory of ability, is brought out 
 very clearly in the fact that the most influential, and to their 
 advocates the most decisive, arguments result from inconse- 
 quential reasoning, or specters of the imagination. For the 
 most part these arguments take the form of objections to a 
 progressive tax; on the ground that it is, " inquisitorial," is 
 " robbery," is " socialistic," is " inhuman," is "sentimental," 
 is " arbitrary," etc., etc. With such an abandonment of 
 reason argument is impossible. 
 
 There is, however, one argument that perhaps deserves 
 
230 JUSTICE IN TAXATION [566 
 
 more consideration. It is not the result of fright at a 
 " specter," but is nevertheless a clear type of the incon- 
 sequences of reasoning by a complete shifting of premises. 
 I refer to the leave-them-as-you-find-them argument for pro- 
 portional taxation — noli me tangere. This is one of the most 
 common, and has been, perhaps, the most telling, argument 
 for proportional taxation, but it has nothing whatever to do 
 with the theory of ability. If the argument has any applica- 
 tion at all it is, as Neumann says, in the give-and-take theory 
 of taxation,' and only in the persistence of the benefit theory 
 does it find any place in the theory of ability. The argu- 
 ment, too, presumes that property, not income, is the source 
 of the tax, and is closely allied with the economic doctrine 
 of laissez-faire. Moreover, the primary premise is itself 
 false. Noli me tangere is no more a function of government 
 in taxation than it is to level all fortunes. A tax necessarily 
 affects the distribution of wealth through its influence upon 
 the savings from income, and the cessation of taxes (assum- 
 ing that government would still exist) would favorably 
 affect, upon the whole, the accumulations of the rich more 
 than of the poor. A government, then, has done its duty 
 when it distributes the tax according to the ability to bear it, 
 although it incidentally and indirectly affects the distribution 
 of wealth even though this end is not directly aimed at.^' Still, 
 a government may not overlook the economic effects of a 
 tax, for when these become ruinous it is evidence that the 
 tax is not based upon ability to bear it, and is therefore 
 unjust.3 But proportional taxes may affect the distribution 
 of wealth in the same manner as progressive taxes, though 
 by no means in the same degree. 
 
 Passing over these irrelevant arguments for proportional 
 taxation, the question whether a tax proportional to income 
 
 * Neumann, Die Progressivsteuer, p. loi. 
 
 » Cf. Neumann, ibid. ' See chapter iii. 
 
^%,^^''^>' 
 
 567] ETHICAL PRINCIPLES OF TAXATION " 231 
 
 is a tax proportional to ability may be considered from two 
 points of view — objectively and subjectively. Objectively, 
 it is a question of the relative importance of public and 
 private needs satisfied by increasing incomes ; subjectively, it 
 is a question of the relative sacrifice endured by the posses- 
 sors of large and small incomes through the payment of the 
 tax. In the former case, relative ability is determined by the 
 relative importance, objectively considered, of the needs 
 unsatisfied because of the tax ; in the latter case, relative 
 ability is determined by the subjective intensity of the same 
 marginal, unsatisfied wants. As the question leads at once 
 to progressive taxation, it will be considered in that connec- 
 tion. The disproof of proportional taxation based oa ability 
 is the proof of progression. 
 
 (2) Progressive Taxation. That the principle of taxation 
 according to ability leads logically and inevitably to a pro- 
 gressive rate is recognized by most economists who accept 
 ability, or its assumed equivalent — equality of sacrifice — as 
 the just basis of taxation. Some, however, like Mill and 
 Vocke, accept the principle of progression only in its modi* 
 fied form of degression — a proportional rate on the "clear" 
 income.' Others, like Seligman, Pescatore and Walker, 
 while accepting the principle of progression theoretically, as 
 the only logical outcome of the ability basis of taxation, 
 question whether it can be justly applied in practice on 
 account of the practical difficulties in the way of its execu- 
 tion.^ 
 
 Upon what, then, does this consensus of opinion rest? In 
 brief, upon the conviction that ability to pay taxes increases 
 faster than income increases. But what is the ground of this 
 conviction, if it is anything more than a mere sentiment, or an 
 
 ^ Mill, Polit. Econ., v, 2, 3; Vocke, op. cit., pp. 472-9. 
 
 * St\\gxad.x\, Progressive Taxaiion,^. 199; Pescatore, Za Logica delle Impost, 
 pp. 23-5 ; Walker, Political ^Economy, p. 500. 
 
232 JUSTICE IN TAXATION [568 
 
 ipse dixit ? It rests upon both objective and subjective con- 
 siderations. Let us note the latter first. 
 
 Subjectively, then, a tax is assumed to be proportioned to 
 ability when it effects an equality — "equivalence" — of sacri- 
 fice ; when the holder of a small income feels the sacrifice 
 occasioned by his tax just as much, but no more, than the 
 holder of a large income feels the sacrifice occasioned by his 
 tax. But, so it is maintained, such an " equality of sacri- 
 fice " is not obtained by the giving up of proportional parts 
 of incomes of different sizes. For, in satisfying our wants 
 the most intensive wants are always the first to be satisfied, 
 and with increasing incomes wants will be satisfied of ever 
 decreasing intensity ; so that the marginal utility of the want 
 satisfied with the last increment of a large income has a less 
 intensity than the marginal utility of the want satisfied with 
 the last increment of a small income. Or, what amounts to 
 the same thing, the wants sacrificed on account of the tax are 
 always the least intensive wants, but the marginal wants sacri- 
 ficed on account of the tax increase in intensity as incomes 
 decrease in size — the obverse of the fact that with increasing 
 incomes wants of decreasing intensity are satisfied. Hence, 
 the taking of proportional parts of unequal incomes neces- 
 sarily does not effect a proportional sacrifice. Therefore, a 
 progressive rate is essential to realize a true proportion, the 
 rate gradually increasing as incomes increase. 
 
 As put by Meyer the argument is, that " the proportional 
 tax (Der gleiche Steuerbetrag) occasions a so much larger 
 sacrifice the smaller the income from which it is borne, 
 because the smaller the income the more intensive are the 
 needs which are deprived of the means of satisfaction, and 
 the average intensity of the needs attaining satisfaction is 
 put off to an ever greater distance." ' Hence to equalize 
 
 * Meyer, op. cit., p. 331. Meyer advances another argument for progressive 
 taxation that is closely allied with his argument for diSerential rates on funded 
 
569] ETHICAL PRINCIPLES OF TAXATION 233 
 
 the intensities there must be a progressive rate. So, Hke- 
 wise, it is held by Wagner: "That it is statistically probable 
 that ability increases faster than income, because with in- 
 creasing income there is an ever larger quota of free income 
 left over, which is not held for the satisfaction of subsistence 
 needs, therefore for needs satisfied with much greater diffi- 
 culty," ' larger portions of small incomes and smaller portions 
 of large incomes being used to provide for the necessities — 
 food, clothing, shelter. Hence the necessity of a progressive 
 rate. So, too, Neumann reaches the same conclusion from a 
 slightly different point of view. In the first place ability is 
 identified with sacrifice, since, like sacrifice, it increases 
 either as one imposes labor upon himself or as he denies 
 himself enjoyments and satisfactions — "the sacrifice of toil 
 and of renunciation." ^^ Such sacrifices are imposed by 
 taxes. Nevertheless, ability to pay taxes is not propor- 
 tioned to income, as there are other sacrifices that must be 
 taken into consideration — expenses for food, clothing, cul- 
 ture, care and support of the family, etc., etc. These latter 
 sacrifices increase progressively as incomes decrease. 
 Hence, a progressive rate with increasing incomes is neces- 
 sary in order that the tax may " occasion equal efforts and 
 sacrifices over against other needs." ^ 
 
 In spite of the weight of authority in its behalf and the 
 dictum of Neumann, " that it is only through a consideration 
 of the sacrifice imposed that the measure of ability first con- 
 tains definite form and becomes useful for a tax system," * 
 
 incomes. It is, that with larger incomes there is greater power of accumulation of 
 property; that, therefore, they should be taxed more highly, the property adding 
 to the ability as in the case of funded property. The argument contains the same 
 fallacy as that for a differential rate on funded incomes. {Anie, pp. 213-216.) 
 Or, if it be presumed that the accumulation of a large property increases the 
 income, the argument is not to the point. 
 
 1 Wagner, op. cit., p. 457. 
 
 * Die Progressive Eitikommensteuer, p. 62. * Ibid., p. 63. * Ibid., p. 62, 
 
234 JUSTICE IN TAXATION [570 
 
 the sacrifice theory of progression is not to us, we confess, 
 altogether convincing. Indeed, the argument appears to be 
 a non sequitur. Because we satisfy our wants in the order 
 of their decreasing intensity, or with large incomes satisfy 
 less intensive wants than with small incomes, and in the case 
 of a tax sacrifice the least intensive of our wants, it does not 
 follow that proportional parts of incomes of different sizes 
 will not effect equivalent sacrifices ; that, for example, a 3 
 per cent, tax on A's income of $10,000 is not felt by him 
 exactly the same as a 3 per cent, tax on B's income of 
 $i,coo is felt by him. If the income of A were suddenly 
 reduced from $10,000 to $1,000 and the income of B raised 
 from $1,000 to $10,000, then A would feel a 3 per cent, tax 
 on $1,000 proportionately more, and B a 3 per cent, tax on 
 $10,000 proportionately less than they felt the 3 per cent, 
 tax on their former incomes. But this does not follow when 
 the state of mind of A is compared with that of B, for what 
 is to A a necessity is to B a luxury. Really, comparison 
 between them is impossible. 
 
 Above all is our contention true if, with Mill and Vocke, 
 we exempt the necessities — the minimum of subsistence — 
 and apply the rate only to the clear income ; an exemption, 
 as we shall show later, is the logical consequence of the 
 ability theory. Moreover, necessities are in a class by them- 
 selves. Comparison between them and other wants is on 
 a par with a comparison between the indefinite and the 
 definite, or in their extremes, between the infinite and the 
 infinitesimal.' Apart, then, from the question, whether the 
 ideal aim of taxation is the production of equivalent in- 
 tensities of feeling on account of the tax (a somewhat ques- 
 tionable ideal), there can be no subjective proof of the 
 realization of this equivalence. Subjectively, we cannot tell 
 whether it would be attained by a proportional, a progres- 
 
 * Cf. Sax, Die Frogressivsteuer, p. 85. 
 
5/1 ] ETHICAL PRINCIPLES OF TAXATION 235 
 
 sive, or a degressive rate. We are dealing with the " quan- 
 titatively immeasurable." 
 
 In spite of this difficulty both Wagner and Neumann, 
 while accepting ability as the true basis of taxation, find 
 their proof for progression only by interpreting ability in 
 tei-ms of subjective sacrifice. On the other hand, Meyer, 
 who makes sacrifice the basis of the tax, determines the rate 
 (which he finds should be progressive) by interpreting the 
 sacrifice in terms of objective economic conditions — of 
 objective ability. So, likewise, Sax declares that no definite 
 results can be attained by the sacrifice theory, as all we can 
 say of feelings is that one is greater or less than another, 
 but not how much greater or less.' But Sax does not him- 
 self escape the difficulty as easily as he imagines. He 
 prides himself, as we have seen, upon escaping the dilemmas 
 of the sacrifice theory (and also of the ability theory) by his 
 theory of marginal utility, applicable alike to collective and 
 to private wants. From the fact that as incomes increase 
 there is both a decreasing utility — a decreasing intensiveness 
 — in the wants satisfied, and at the same time an increasing 
 utility, with respect to their extensiveness, it is concluded 
 that finally the extensiveness of the utilities becomes so 
 great that their decreasing intensiveness is practically in 
 inverse proportion to the increase of income ; and that, but 
 for their extensiveness it would be more than an inverse 
 proportion.^ But in changing from the conception of sacri- 
 fice to that of marginal utilities, Sax has not changed the 
 principle in the least. He is still dealing with subjective 
 states of feeling. These marginal utilities are precisely what 
 the sacrifice consists of. To effect an "equivalence" of 
 these utilities — these subjective feelings — is not a whit differ- 
 ent from effecting an " equivalence" of sacrifice. 
 
 Hence, in the determination of the question of rates, the 
 
 ' Cf. Sax, Die Prop-essivsteuer, p. 83. ' Sax, ibid., p. 86. 
 
236 JUSTICE IN TAXATION [572 
 
 theory of Sax has to meet with practically the same diffi- 
 culties that are to be met with in the sacrifice theory, and he 
 solves the problem exactly as Meyer solved it — by an appeal 
 to objective standards, to the general agreement among 
 men, and to the observation of the effects of feelings in 
 economic exchange.' True, the objective conditions are 
 supposed to be the expression of the subjective feelings, or 
 subjective feelings to be induced by objective conditions ; so 
 that in determining the tax rate the government has but to 
 observe the effect upon feelings of objective conditions and 
 relations, and then so arrange the rate that these relations 
 will produce the desired subjective efTect — equivalence of 
 feelings = equivalence of sacrifice. 
 
 But with all of the " observation " of the effect of feelings 
 upon economic exchange, no government can tell whether a 
 tax proportional to income will produce equivalent feelings ; 
 not only for the reason already given, to wit: that the fact 
 that with increasing incomes the marginal utilities satisfied 
 are of constantly decreasing intensity — of constantly de- 
 creasing utility — is no proof that the loss of a portion of 
 these utilities to A, with a large income, would not be the 
 same to him as the loss of the same proportion would be to 
 B, with a small income ; but also from the fact, as well pointed 
 out by Sax, that we must take account of the extensiveness 
 as well as the intensiveness of the marginal utilities sacrificed. 
 Even if a " more or less " could be determined, the theory 
 affords no way of determining how much more or less, or 
 the rate of the progression ; for I cannot agree that collective 
 wants are determined in exactly the same way as are the 
 private wants.'^ 
 
 It has remained for the Dutch economists, firmly adhering 
 to the sacrifice theory, and to progression as its logical con- 
 
 * Sax, Die Progressivsteuer, p. 85. 
 
 * CJ. Neumann, Die Steuern und das offentliche Inter esse, pp. 190-200. 
 
573] ETHICAL PRINCIPLES OF TAXATION 237 
 
 sequence, to reduce the rate of progression to a fixed rule 
 
 to a mathematical formula— but their scientific exactness is 
 purely an affair of the imagination. As we have seen, they 
 attempt to solve the problem by the ingenious but deceptive 
 device of taking two series of numbers and assuming that 
 they correspond respectively to the decreasing utility of in- 
 creasing increments of income, and the decreasing utility of 
 increasing increments of the tax, such as would result from 
 proportional taxation. This, it is assumed, would show an 
 unequal, or a disproportionate, sacrifice. All that there is 
 to do then is to so change the series as to produce a rate 
 that will equalize the marginal utilities of the tax on differ- 
 ent incomes, or equalize the sacrifice occasioned by the tax. 
 But as there is absolutely no reason for choosing one series 
 rather than another, any result, any rate of taxation, is 
 theoretically possible according to this theory. This Cohen- 
 Steuart admits, but .his own attempted refinement of the 
 theory by assuming that the truth lies in the mean between 
 two extremes, is, as both Professors Sax and Seligman have 
 shown,' equally groundless, equally imaginary. It is all 
 guess work, all groundless hypothesis. Hence the rule for 
 progression : " Arithmetical increase of the rate with geomet- 
 rical increase of the income up to a definite point when pro- 
 gression is replaced by proportion," » is purely chimerical, 
 and therefore wholly without value. 
 
 Upon the whole, then, the sacrifice principle does not 
 appear to throw much light upon the theory of rates. In- 
 evitably appeal must be made to objective standards, to ob- 
 jective economic conditions and relations. Even if " equiv- 
 alence of feeling " is the ideal of justice in taxation, it is a 
 purely abstract ideal. A government has fulfilled its obliga- 
 
 ' Sax, Die ProgressivsUuer, p. 59 et seq.; Seligman. Progressive Taxation, 
 pp. 184-5. 
 
 * Quoted from Seligman, Ibid., p. 188. 
 
238 JUSTICE IN TAXATION [574 
 
 tions in the just distribution of the tax burden when it has 
 proportioned the tax according to the abiHty of the tax- 
 payer, as this abiHty is determined by objective facts, objec- 
 tive economic conditions of the taxpayers. We may grant 
 that such a tax may, and in a very general way will, produce 
 an equivalence of subjective feelings. But the fact remains 
 that the point of view of the government is that of relative 
 objective ability; that is, ability as determined by the econ- 
 omic means for the satisfaction of public and private needs, 
 their relative importance being taken into consideration. 
 Such a conception of ability and our obligation to pay taxes 
 is founded upon the nature of the state. It is, as we have 
 seen, of a distinctively ethical connotation. This granted, 
 What rate of taxation follows as a logical consequence? 
 That is, A and B having incomes of different sizes, what 
 portions of their incomes ought each to contribute to the 
 support of the state, on which their social and civilized ex- 
 istence depends? If A has ten times the income of B, ought 
 he to contribute ten times as much? Is his ability ten times 
 as great? To me the question is essentially, at least funda- 
 mentally, ethical. But it is a question of practical ethics. 
 It involves, nay it cannot escape, consideration of the rela- 
 \ tive economic conditions of A and B ; nor, again, the effect 
 J of a tax upon their relative economic conditions. Imme- 
 / diately the problem has an objective reference ; ultimately, a 
 subjective reference. That is to say, immediately it is a 
 question of the true relation between economic means and 
 objective economic conditions ; while ultimately it is a ques- 
 tion of the relative importance, or character, of the wants 
 satisfied by the economic means, or the relative importance 
 of the needs of which the economic conditions are the 
 expression. Immediately and objectively it has to do with 
 economic conditions ; ultimately and subjectively with the 
 importance of these relations in their bearing upon the pur- 
 
575] ETHICAL PRINCIPLES OF TAXATION 239 
 
 poses of life. A government, however, must find its rules 
 for guidance in the objective conditions, in accordance with 
 a standard that represents the consensus of opinion as 
 moulded by the moral sense of mankind ; by the habit, 
 customs, and ideals as reflected in social institutions; by the 
 degree of culture and civilization attained and by the econ- 
 omic status of the society in question. 
 
 Now by common consent wants are divided, in a very 
 general way, into necessities, comforts and luxuries, and by 
 common observation we learn that there is a certain corres- 
 pondence between the satisfaction of each of these grades of 
 wants and the amount of disposable income ; or, that with 
 different amounts of income we provide ourselves with dif- 
 ferent classes of economic goods, and thereby with the cor- 
 respondingly different grades of enjoyment, of which the 
 economic goods afford the means. By common consent, 
 too, the necessities are deemed of the most, the luxuries of 
 the least relative importance, not alone from the viewpoint 
 of the subjective value to the individual, but also from the 
 viewpoint of the progress and development of mankind. 
 The comforts stand between the two. Therefore, the exten- 
 sion of the scope of the necessities is of more importance 
 than the extension of the comforts, while the extension of 
 the latter is of more importance than the extension of the 
 luxuries, and this importance could be shown to extend 
 both to our economic and our spiritual well-being. Hence, 
 considered from the viewpoint of the realization of the ends 
 of man, in which is found the ultimate end of the state, it is 
 of more importance that those who are confined to the 
 necessities of life extend the scope of their satisfactions, 
 than that those who enjoy the luxuries should extend theirs. 
 
 At the same time it must be admitted that the comforts 
 and luxuries are as positive factors in human development 
 as are the necessities. Indeed, in a sense they are much 
 
240 JUSTICE IN TAXATION [576 
 
 more significant. Necessities, when confined to absolute 
 necessities, are a pre-condition to any development. De- 
 velopment begins only when the stage of necessities is 
 passed, when the stage of comforts, or of "culture" begins. 
 And progress is marked by the gradual merging of comforts 
 into culture necessities, and the conversion into luxuries of 
 what has been regarded as superfluous. But the order of 
 their importance remains unchanged. From the ethical 
 standpoint, both of man and of the state, it would seem, then, 
 to be a logical deduction, that the deprivation of a portion 
 of the luxuries would be of relatively less importance than 
 the deprivation of a similar portion of comforts, and, still 
 more, than that of necessities. Or, what amounts to the 
 same thing, it is of more importance that there should be the 
 means of satisfying the latter than either of the former. 
 
 Briefly, then, we are forced to the conclusion that ethically 
 considered, that is, from the viewpoint of the ethical con- 
 ception of man and of the state, wants of relatively decreas- 
 ing importance are satisfied with increasing incomes, so that 
 the taking away of a part of a small income (as by a tax) 
 necessitates the giving up of wants of relatively greater im- 
 portance than would the taking away of equivalent parts of 
 large incomes. In other words, considered with respect to 
 the importance of wants there is proportionately more dis- 
 posable for taxes in large, than in small, incomes — propor- 
 tionately greater ability. But there is no difiference in the 
 importance of the state to the person, as such. The dififer- 
 ence of interest is indistinguishable. Yet regarded from the 
 point of view of the totality of satisfactions, and, therefore, 
 of the means of these satisfactions, the importance of the 
 state to the individual would seem to increase with the in- 
 crease of income ; and because of the indispensableness of 
 the state to this increase of income, its importance might 
 well be regarded as increasing in greater proportion than 
 
577] ETHICAL PRINCIPLES OF TAXATION 24 1 
 
 the increase of income. Hence, also, the obligation for a 
 more than proportionate share of the tax burden as meas- 
 ured by income. But this view merges into the benefit 
 theory ; it does not directly determine ability, or the obliga- 
 tion resting upon it. Confining ourselves, then, to the view 
 of the equal importance of the state, the above argument 
 leads inevitably to the conclusion that ability increases in a 
 greater ratio than income, thus necessitating a higher rate 
 on large than on small incomes in order that the tax may 
 be proportional to ability. In brief, a progressive rate on 
 increasing incomes is essential to a proportional tax on 
 ability, if by ability is understood the relative satisfaction of 
 wants with respect to their importance. 
 
 This view of progression is not, I think, altogether dif- 
 ferent from that of SchafBe, who conceives of ability as 
 determined by the amount which one can contribute in 
 taxes without crippling the same relative support of himself; 
 and who concludes that this principle leads to progression, 
 on the ground that as incomes increase in size relatively 
 larger portions may be contributed to the state without 
 detriment to a relative satisfaction of personal wants. But 
 Schaffle also thinks that the idea of progression is itself 
 "instinctively correct," "it being only the manner of carry- 
 ing it out that is false in the theory of progressive taxation."' 
 This is specially true if we give emphasis to the difference 
 in the importance of wants, which appears to be implied in 
 the theory of Schafifle. It is questionable if based on the 
 sacrifice theory. But progression is "instinctively correct" 
 only because it is based upon ideas that conform to the 
 common judgment of mankind, with respect to the relativity 
 of wants and their comparative importance to individual and 
 social well-being. 
 
 That there is an indefiniteness in this theory of progres- 
 
 * Schaffle, Mensch und Gut, p. 49. C/. also, Die Grutidsatze, p. 23. 
 
242 JUSTICE IN TAXATION [578 
 
 sion, and that it affords no definite ratio, or rate, of pro- 
 gression, is not to be denied.' But this is inevitable in any 
 theory of progression, and it does not prove that the prin- 
 ciple itself is not correct. It has, at least, the merit of con- 
 forming to the sound principle of Vocke (though differently 
 applied by him), that the principle of progression must 
 proceed from its own fundamental thought,'^ which we take 
 to be the principle of relative ability as determined by in- 
 come and by the relative importance of wants. 
 
 But though vague and indefinite, must it be admitted that 
 this theory of progression affords absolutely no principle for 
 determining the rate and the limit of the progression? We 
 think not. Vocke solves this question easily by assuming 
 that the "fundamental thought" is the primary right to the 
 needs of subsistence, and therefore the right to the exemp- 
 tion of the minimum of subsistence, by which both the rate 
 and its limit is fixed by the amount of the exemption, the 
 only indefiniteness being in the amount of the exemption. 
 That is, the limit of progression is dcgression.3 The diffi- 
 culty with this view, as it appears to me, is this: What 
 Vocke considers to be the " fundamental thought " of pro- 
 gression — that is, of the principle of equality — is in reality, 
 the fundamental thought of exemption — that is, of the prin- 
 ciple of universality. The degressive principle is, indeed, 
 incidental to exemption, but it has no direct bearing upon 
 the question of progression, except upon the questionable 
 assumption that ability is proportional to " clear" income. 
 
 Schaffle, without reference to any "fundamental thought" 
 of progression, but upon mere grounds of policy, would 
 have the rate and limit of the progression indirectly deter- 
 
 ^ See Seligman, Progressive Taxatiou, for criticism of Schaffle. 
 * See Vocke, op. cit., p. 477. 
 ' Vocke, ibid., pp. 477-9. 
 
579] ETHICAL PRINCIPLES OF TAXATION 243 
 
 mined by the taxpayers themselves, through a tax upon 
 consumption.' But this would be very uncertain in its 
 effects on account of the shifting and incidence of taxes. 
 Still, we may admit that the tendency of such a system 
 would be to impose the tax "according to one's dynamic 
 ability;" also to tax the " economic personality," and at the 
 same time put a limit upon the progression.^ So likewise, 
 Held would also indirectly attain the same result by impos- 
 ing taxes so that they will occasion the least complaint, this 
 complaint being considered as the best index, or measure, 
 of sacrifice, or ability.^ This view has much in common 
 with the theory of Sax, already sufficiently discussed, that 
 the "equivalence" of the burden, and therefore, also, the 
 just tax rate, is determined by the people through their 
 representatives in the government. 
 
 But while these views contain much truth, I believe that 
 we can find in the principle of progression rules that deter- 
 mine and limit its rate. Theoretically, if the principle of 
 progression is based upon comparative ability, as we have 
 understood it, there must be the same relative means of 
 satisfying wants, according to their importance, after as be- 
 fore the tax. This is a mere truism. But it follows, also, 
 that there should be the same relative ability to exercise 
 one's faculties, to the end of larger satisfactions, as existed 
 prior to the tax. Otherwise progressive human develop- 
 ment will be checked, and the purpose for which the state 
 exists be negatived. Nor is this mere abstract theory. The 
 same objective signs, by which the principle of progression 
 is objectively determined, will aid, also, in determining the 
 rate and limit of the progression — the effects of a tax upon 
 the relative economic means of satisfaction. Above all is 
 
 * Schaifle, Mensch und Gut, pp. 168-9. ^ Ibid., p. 168. 
 
 * Einkommensteuer, p. 115. 
 
244 JUSTICE IN TAXATION [580 
 
 the limit reached when the rate is such as to prevent that 
 ' saving' that provides for future production." ' 
 
 That this whole view of progression — of equality in taxa- 
 tion — is vague and arbitrary, must again be admitted. But 
 so is every other theory of progression. Here everything 
 depends upon the determination of the relative importance 
 of needs, which is a purely relative conception. But it must 
 be borne in mind that our viewpoint is ethical — the ethical 
 ideal in taxation. Nevertheless, this conception of progres- 
 sion is not altogether impracticable. It is capable of prac- 
 tical application within certain limits, and, therefore, of 
 realizing an approximation to justice, which is all that any 
 theory of progression can claim. And the higher the moral 
 standard of mankind the more nearly will the approximation 
 attain to the ideal. 
 
 But in spite of the justice of the principle of progression, 
 there are practical objections of another character that de- 
 serve, perhaps, some consideration. That progressive tax- 
 ation would prevent the growth of capital, or cause it to 
 emigrate, is true only if the rate of progression be excessive. 
 It would not follow moderation, or a wise conservatism, in 
 the application of the principle. This is attested by the 
 results of its practical application in Switzerland, Saxony, or 
 wherever else applied. The same is true of the objection 
 that, logically carried out, a progressive tax would confiscate 
 wealth and equalize fortunes. Besides, logically carried out 
 progressive taxation does not lead to confiscation. Progres- 
 sion may lead to infinity, but progressive taxation is limited 
 in its application by the principle by which it is itself deter- 
 mined, as we have already seen. Hence, Wagner's social- 
 political theory of progressive taxation is in direct conflict 
 with his theory of taxation according to ability. Again, that 
 
 ' The theory that a progressive tax necessarily prevents " saving " is based upon 
 the erroneous assumption that what is paid as a tax would otherwise be " saved." 
 
58 1 ] ETHICAL PRINCIPLES OF TAXATION 245 
 
 progressive taxation would stimulate money lenders to en- 
 courage the increase of public debts is no truer than in the 
 case of proportional taxation.' Nor would it necessarily 
 imply undue interference with personal rights and liberties. 
 This results more from the kind than from the rate of 
 taxation. 
 
 Upon the whole, then, I believe that if progression is just 
 in principle it should be applied in practice ; but moderately 
 applied. Even a conservative attempt to realize a principle 
 of justice that is felt to be "instinctively correct" would go 
 far towards mitigating the social discontent of the masses, 
 and would tend to their rise by peaceful, instead of by 
 revolutionary, methods. Or, as Held says: progressive 
 taxation ** is a social need and a means of peaceful pro- 
 gress."' "A social need," I take it, in the sense that I have 
 understood the principle of progression, as largely con- 
 ditioned by the relative importance of the intellectual and 
 social development of the poorer classes, upon which in 
 great measure depends the progressive development of man- 
 kind;" peaceful progress," since every recognition of justice 
 towards the masses, on the part of the government, tends to 
 kill the revolutionary impulse. 
 
 "If that organization of society and political life which we 
 call aristocratic in the best sense of the term," says Cohn, 
 "is to survive (and it is indispensable for the progress of 
 civilization that it should survive), the corresponding aristo- 
 cratic attitude of the upper classes must come up to the 
 demand made upon it. They will, among other things, have 
 to fulfil this requirement also in the way of accepting an 
 adequately developed system of taxation. Their degree of 
 readiness will make up in quality for what the democratic 
 masses would otherwise demand, some day, in quantity. 
 The voluntary acceptance of an increasing burden will serve 
 
 * Cf. Adams, Public Debts, pp. 39-41. 'Held, op. cit., p. 172. 
 
246 JUSTICE IN TAXATION [582 
 
 to strengthen their traditional influence and is indispensable 
 to the best civilization, as well as to the existence of the 
 higher classes themselves. On the other hand, the more an 
 increasing progression comes as the result of the importunate 
 demands of a discontented populace, the more reckless will 
 it be, both in the new demands which it embodies and in its 
 changes of the old order of things."' In brief, if the prac- 
 tice of progression by those upon whom it would apply 
 creates a possible danger, it averts the possibility of a far 
 greater danger. 
 
 II. The Principle of Universality 
 That the principle of " universality," like the principle of 
 " equality," follows from the nature of the state, the nature 
 of the individual, and from the relation of the individual to 
 the state, we have already seen. Thus viewed there would 
 seem to be no ground for any exception to the rule. Uni- 
 versality would seem to be an unconditional principle of 
 taxation. This, in fact, is the view of most writers on the 
 theory of taxation. It is the common idea that because of 
 the indispensableness of the state to the individual, the 
 universality of interest in the state, there is no exception, in 
 principle, to the obligation to contribute to the state's sup- 
 port. If exception is allowed, it can be only upon the 
 ground of absolute necessity — the non-existence of means 
 above the necessary minimum of subsistence. For to tax 
 this " minimum" would necessitate an equal return from the 
 taxes, which would occasion a net loss to the government, 
 because of the increased cost of the collection and dispensa- 
 tion of this part of its revenue without any net return to 
 itself. 
 
 But this view of exemption from taxation appears to me to 
 be entirely wrong. It overlooks important factors in the 
 
 ^ Cohn, o/>. cit., pp. 324-5. 
 
583] ETHICAL PRINCIPLES OF TAXATION 247 
 
 problem. It is consistent only with the protective theory of 
 the state and the benefit principle of taxation.' For since 
 every individual receives protection, and thereby derives a 
 benefit, every individual, without exception, should con- 
 tribute to the cost of that protection. In the case of prop- 
 erty there could be no tax for protection if there was no 
 property to protect.'^ But for the protection of the person 
 there could be no exception, other than that of absolute 
 necessity. For every "benefit" there must be a correspond- 
 ing tax. If we consider the benefit to consist in the gains 
 from " exchange " there could be no tax where such " gains " 
 did not exist, but there are certain benefits that are imma- 
 terial gains, common to every member of the state, and for 
 these gains every citizen should contribute a tax in exchange.3 
 Again, we may regard the benefit as consisting in the ser- 
 vice performed by the state in production. In this case, if 
 we look at results only, there could be no tax if the " ser- 
 vice " was not utilized — if there was no production. But, on 
 the other hand, if, more properly, we regard the state as the 
 condition precedent to all production, in which every one is 
 privileged to participate, there would seem to be no ground 
 for exemption. "» At any rate, Stein considers it to be just to 
 tax labor on the ground that it is only by the administra- 
 tion of the state that its acquisitions are made possible.^ In 
 reality, however, the problem of exemption is not consistent 
 with Stein's theory of " diffusion," since, according to this 
 theory, the burden of the tax is, in the main, justly dis- 
 tributed through the influence of price.^ Or, again, if the 
 benefit consists in the possession of a portion of the " na- 
 tional capital," and the tax is distributed in proportion to 
 the amount of this capital held, then there can be no 
 
 ^ Cf. Murhard, op.cit., p. 90. ' CJ. Sismondi, op. cit., p. 164. 
 
 ' Cf. Perry, op. cit., p. 515-8. * Cf. Stein, op. cit., p. 496. 
 
 * Ibid., ii, p. 251. ^ Ibid., i, p. 494. 
 
248 JUSTICE IN TAXATION [584 
 
 exemption except where there is no possession of the 
 national capital. " The minimum of needs is spared by 
 force of necessity, not by virtue of a false principle." ' 
 
 Much the same conclusion results when exemption is con- 
 sidered from the viewpoint of " equality of sacrifice;" for if 
 " equality of sacrifice " is the true principle of taxation any 
 exemption must appear as a contradiction of the principle, 
 and is to be justified only on grounds of absolute necessity.* 
 For where there is no tax there can be no sacrifice, and 
 hence no " equality " in taxation. Exemption is an excep- 
 tion to the principle, not a logical consequence of it.3 
 Nevertheless, Sax attempts to deduce exemption as a conse- 
 quence of the principle of subjective sacrifice, and his ex- 
 planation is, perhaps, the best that has been given from this 
 standpoint. The thought is, as with Mill,'^ that the physical 
 necessities are incomparable in their intensity with all other 
 classes of needs, comparison being possible only between 
 those needs that are satisfied after the physical minimum is 
 passed, the comparison including all collective needs. But 
 no needs above the physical minimum (which includes the 
 collective needs) can be satisfied until the needs below the 
 minimum are fully satisfied. Hence, sharing in the expense 
 for the satisfaction of collective needs can take place only 
 where the means exceed the requirements of the minimum 
 of subsistence. 5 The exemption is a matter of necessity, not 
 of principle. " On grounds of absolute necessity the pure 
 minimum must be exempted, but justice does not demand 
 any exemption so long as there is an income equal to the 
 minimum plus the tax."* 
 
 But exemption on the ground of necessity is confined to 
 the bare physical necessities of life. If exemption is to be 
 
 > Menier, op. cit., p. 221. * See, for example, Wagner, op. cit. 
 
 * Cf. Meyer, op. cit., p. 294. * Mill, Political Economy, v, 2, 3. 
 
 * See Sax, GrundUgung, pp. 509-13. • Sax, Die Progressivsteuer, p. 69. 
 
585] ETHICAL PRINCIPLES OF TAXATION 249 
 
 justified on income that exceeds the requirements of these 
 bare necessities, it must be justified upon some fundamental 
 principle, be the logical outcome of the " fundamental 
 thought " that lies at the basis of the ethical idea of taxa- 
 tion. Such I believe to be in accordance with the real facts 
 of the case. We have, then, two problems before us — the 
 justification of exemptions and the limitations of exemption. 
 
 I . The Justification of Exemptions. Accepting the ability 
 basis of taxation, exemption of the minimum of subsistence 
 follows as a necessary consequence. For if taxation accord- 
 ing to ability is the true principle of taxation, it is a mere 
 truism to say that where there is no ability there can be no 
 obligation. It is not merely that there can be no tax if 
 there is no ability, but where the ability does not exist the 
 tax obligation does not exist. The obligation begins the 
 moment that the ability is manifest. To tax where there is 
 no ability would be a violation of the principle that taxes 
 should be proportioned to ability. Exemption, where there 
 is no ability, is but the fulfilment of the impHcations of the 
 principle which is assumed to be the just basis for the dis- 
 tribution of the tax burden. It is not, as in the preceding 
 theories, a necessary exception in contradiction with the 
 principle that is assumed as the basis of taxation. 
 
 It is true that the exemption of any person from the pay- 
 ment of taxes is in contradiction with the principle of uni-. 
 versality. But this principle is a relative, not an absolute, 
 principle of taxation. Or, if politically and economically it 
 is absolute, ethically the principle of universality extends 
 only so far as there is ability. Within this limit only is it a 
 universal principle. Hence, while exemption is an excep- 
 tion to the general principle of universality, it is in harmony 
 with the qualified form of the principle — the form in which it 
 is a true principle of taxation. True, exemption of the min- 
 imum of subsistence is a necessity, but this is not its only 
 justification. It follows, as we have seen, from principle. 
 
2^0 JUSTICE m TAXATION [586 
 
 But the real justification of exemption rests upon a basis 
 that is more fundamental than the idea of taxation according 
 to ability. It rests, indeed, upon the same " fundamental 
 thought" as does the idea of ability itself. Both are devel- 
 opments of the same fundamental idea — human personality 
 in its relation to the state. It involves both the relations of 
 the individuals to the state and their relations to each other, 
 and not simply, as Meyer holds, their relation to the state ; 
 nor, as Wagner seems to hold, simply their relations to each 
 other.' Particularly is this true if the exemption is to extend 
 beyond the bare necessities for physical existence. 
 
 What, then, is the fundamental ground of exemption, or 
 of exceptions to the principle of universality in taxation? 
 The more common idea is that since every individual parti- 
 cipates in the ends for which a state exists, every individual, 
 without exception, should contribute to its support. But 
 this we have found to be conditioned by the further prin- 
 ciple, that the support should be proportioned to ability ; 
 by implication there being no obligation where there is no 
 economic ability. But we have now to inquire why this 
 obligation does not exist when the importance of the state 
 to every individual is admitted. Those, for example, who 
 hold that the obligation never ceases base their conviction 
 upon the idea that the state, if not of first importance, is, at 
 least, of equal importance with physical subsistence, to every 
 member of civilized society. This is the view of both Held 
 and Cohn. Held, for example, in declaring against the 
 exemption of the wages of labor, says : "The state is for all 
 a need ; its existence for the whole is more necessary than 
 the life of the individual."' So likewise Cohn: "Plainly, as 
 viewed from the standpoint of the latest theory of the state, 
 there is no room for the doctrine which admits the state and 
 its demands only as second to the necessaries of life. The 
 » See Meyer, cp. cit., pp. 293-4. * Held, op. cit., p. 105. 
 
587] ETHICAL PRINCIPLES OF TAXATION 2$ I 
 
 State, above all things, is part of these necessaries and its 
 demands are therefore part and parcel of the demands of 
 subsistence."' Hence, theoretically, or in principle, there 
 is, according to this view, no justification for exemption. 
 
 But the view of Held and Cohn appears to me to be a 
 mistaken one. It is based upon, or at least it implies, the 
 erroneous conception of the state as a "social organism," 
 the individual being a means, the state the end. But ac- 
 cording to the view that the state exists for the highest 
 development of human personality — the individual being the 
 end, the state a means — " the latest theory of the state," the 
 effect of the tax upon the person becomes of first import- 
 ance. If the state is a necessity to this development, it is 
 quite as true that there must first be the existence of the 
 person. Moreover, the right to provide the means of sub- 
 sistence is a fundamental right, and is prior to every other 
 right. Even Held admits this. He goes even farther, and, 
 in spite of his theoretical objection to exemptions, would 
 exempt not only what is necessary for the physical needs of 
 self and family, but also what is necessary for their spiritual 
 life.'' Vocke, too, recognizes the right to the necessary needs 
 of subsistence as prior to any claims of the state, but he limits 
 this right to the bare minimum of subsistence.3 It must be 
 admitted, however, that with Held the exemption which he 
 
 ^Cohn, op. cit., p. 331. Cf. also, p. 354. 
 
 ' " Den Jeder hat vor AUem das Recht zu leben, und es ist wohl die schreiendste 
 Ungerechtigkeit von dem zum nothdiirftigen Unterhalte erforderlichen Einkom- 
 men noch offentliche Abgaben fiir den Staat zu fordern." Held, op. cit., p. 451. 
 " So wahr aber der Mensch ein Vernunftwesen ist, muss einem Jedem nicht bless 
 as verlassen werden, was ihm zum sinnlichen, sondern auch Das, was ihm zum 
 geistlichen Leben unentbehrlich ist." Ibid., p. 452. 
 
 "" Der Staat nur solche Anspriiche als seinen eigenen vorgehend anerkennen darf 
 und kann, welche alter und naturgemiss noch berechtiger sind als er selbst, 
 nSmlich das Recht auf die Selbsterhaltung und auf die Erhaltung der Familie, 
 bzw. in diesen auf die Erhaltung des Menschengeschlechts. Ein altereres, unbe- 
 dingteres Recht gibt es nicht." Vocke, 0/. cit., p. 480. See also pp. 463-4. 
 
252 JUSTICE IN TAXATION [588 
 
 would allow is not a right, but only a social need that is 
 necessary to the highest efficiency of labor.' 
 
 That exemption of the minimum of subsistence is a neces- 
 sity, as is so universally emphasized, goes without saying; 
 but the above considerations show, I think, that the exemp- 
 tion is also justified in principle, and is not, as Von Hock 
 claims, " a simple act of benevolence." ^ I do not see how 
 any other conclusion is possible when we reflect that the 
 ultimate end of the state is the developed personality of the 
 individual. For the first condition of this development is an 
 economic personality, an economic freedom, which involves 
 above all the necessary means of subsistence. And, there- 
 ■ fore, to tax the " minimum " is to nullify or retard the very 
 development which it is the purpose of the state to promote. 
 This is even more patent if the tax necessitates a public 
 charity. 
 
 The economic and social importance of an " economic 
 personality" was clearly recognized by Held, who deemed 
 it a sufficient ground for the exemption, not only of a bare 
 minimum, but of a sufficient minimum to enable the poor to 
 rise to a higher economic order.3 Stein goes even farther 
 and justifies exemption because of its bearing upon the total 
 personality of the individual. True, Stein regards the state 
 as an " organism " whose personality is to be realized, the 
 tax being a necessary means to this end. But this " or- 
 ganic " view adds nothing to the theory. For the fully 
 realized personality of the state is marked by the realized 
 personality of the individual, or the highest form of personal 
 life — " personal freedom." Indeed, the realization of " per- 
 sonal freedom " is regarded as the ultimate end of the state, 
 and this realization is efifected by the realization of its own 
 personality. But the first requisite is " economic freedom." 
 
 ^Held, p. 118. 
 
 » Von Hock, op. cit., p. 173. ^ Held, op. cit., p. 1 1 8. 
 
589] ETHICAL PRINCIPLES OF TAXATION 253 
 
 Hence, the exemption of the minimum of subsistence.' The 
 same conclusion is reached by Schaf^le, though from a diflfer- 
 ent point of view. Emphasizing the fact that the tax obli- 
 gation rests upon personality — upon the person — it is justly 
 held that there can be no obligation where the personality 
 has not realized itself in property, in an economic personal- 
 ity (eine Vermogenspersonlichkeit), since what the state re- 
 quires is economic goods.' That is, while the tax obligation 
 rests upon personality it is only potential until there is 
 realized an " economic personality." 
 
 While there is much truth in these different views of the 
 relation of exemption to personality, the question of real 
 importance is the effect of a tax (upon the minimum) or of 
 an exemption, upon the personality of the taxpayer.3 
 Where this is endangered there can be no obligation ; and it 
 is endangered when it has not so far developed as to have 
 realized itself in objective goods sufficient to meet the needs 
 of subsistence ; to have realized itself, that is, in economic 
 freedom, in economic personality. In brief, the obligation 
 begins when "economic" or "personal" freedom begins. 
 The first claim upon property, which we have seen to be the 
 objectified self, and therefore, in a sense, a " natural right," 
 is subsistence of the self, of the physical person ; but since 
 the state is a condition of the development of the person- 
 ality of self, the obligation to use the property to support 
 the state, and the right of the state to demand this support, 
 begins after the needs of physical subsistence are met. 
 
 But this right to exemption, on the part of those who have 
 incomes at or below the minimum of subsistence, involves a 
 corresponding obligation, on the part of those who have in- 
 comes above the minimum, to meet the full demands of the 
 
 * Stein, op. cit., section, Die Steuer. 
 
 'See Schaffle, Grundsdtze,^^. 14 and 169. 
 
 2 Cf. Schaffle, ibid., p. 170. 
 
254 JUSTICE IN TAXATION [590 
 
 state for economic goods. Nor docs this obligation rest 
 simply upon the nature of their relation to the state as alone 
 possessing economic ability, but it has its basis also in the 
 nature of the ethical relation of man to man, of man as a 
 spiritual being — an end in himself. Indeed, from no other 
 point of view is exemption to be justified in principle, 
 whether considered with respect to the relation of the in- 
 dividual to the state, or with respect to the relation of 
 individuals to each other as persons. Directly and imme- 
 diately, however, the basis of exemption is the principle that 
 the burden of taxation should be proportioned to ability. 
 Even the social-political argument of Wagner assumes to be 
 based upon this principle. But in making social-political 
 ends the only justification of exemptions,' Wagner diverts 
 his argument from the main point at issue. For the real 
 social-political end of exemption, like that of progression, is 
 not to distribute the tax according to ability, but by equal- 
 izing property to equalize ability. But the attainment of 
 such a result is not a problem of taxation. 
 
 There are, however, various other arguments for the ex- 
 emption, which do not involve the question of principle, but 
 are of a practical nature. Such, for example, is the argu- 
 ment based upon an assumed analogy between capital and 
 labor and the necessity of maintaining their highest effi- 
 ciency. As developed by Luigi Rameri it is, that income 
 consumed for subsistence is a species of recuperation of 
 capital, " being spent to maintain the productive force of 
 labor; " that, therefore, such income should be exempt from 
 taxation for the same reason that the taxable income from 
 any industry excludes that part of the product that goes to 
 pay current expenses and to keep up the plant." Hence, 
 only the clear income is a taxable income. This is the same 
 
 ' See Wagner, op. cit., ii, § 167. 
 
 * Luigi Rameri, "Per la Proportionalita delle Imposte," in Rassegna for Oct. 1891. 
 
I> ,.- 
 
 591] ETHICAL PRINCIPLES OF TAXATION 2$$ 
 
 economic argument as that used by Held who justifies 
 exemption on the ground that to tax the " minimum 
 would lessen the efficiency of labor.' While the argument 
 has directly only an economic bearing it is nevertheless of 
 considerable importance, since to curtail labor efficiency is 
 to check economic progress and thereby to lessen the means 
 and with it also the efficiency of the state. It is given an 
 added weight when we reflect that the evil influences would 
 be cumulative in their effects. But indirectly the argument 
 bears also upon the principles previously discussed. For in- 
 lessening labor efficiency by a tax upon the " minimum " we 
 check the development of " economic personality," and witfv 
 it also that social development that leads to the development 
 of the larger personality of man. 
 
 Passing over the ''compensatory" argument^ which is a 
 question of special and not of general exemption, we may 
 note the argument based upon Adam Smith's fourth canon 
 of taxation :' the argument that there should be an exemp- 
 tion of small incomes on the ground that the cost of collec- 
 tion of the tax would be in excess of the receipts. The 
 effect of such a tax would be, not only to work economic 
 injury to those having small incomes, but also to those hav- 
 ing large incomes, by unnecessarily and unjustly increasing 
 their tax burden. From this point of view exemptions 
 would be justified even though they were not justified in 
 principle. Nor would the exemption necessarily be limited 
 to the minimum of subsistence, but should extend to the 
 point where the receipts from the tax would just exceed the 
 cost of its collection ; just as in the preceding economic 
 argument the exemption should extend to the point where 
 the tax would not cripple the efficiency of labor. 
 
 'See Held, op. cit., p. 118. 
 
 '' For this argument see, for example, Mile. Royer, op. cit.^ pp. 23-7, 
 
 ' Adam Smith, op. cit,, p. 416. 
 
256 JUSTICE IN TAXATION [592 
 
 But while such arguments as these have their weight, and 
 should be considered in any practical application of the 
 principle of exemption, the real justification of exemption 
 must be found, as we have seen, in the nature of man, the 
 nature of the state, and the relation of man to the state. 
 The importance of the state to the individual cannot be 
 ignored, but at the same time the supreme importance of 
 the individual should be recognized. This is brought out 
 very well by Vocke, who of all writers has most clearly 
 stated the true principle of taxation. His statement is a 
 good summary of the whole argument. " Man," he says, 
 " lives and moves in the state and for the state, but not 
 alone that, for he is an end in himself ; if he exists for the 
 state the state exists for him. And if man lives through the 
 state he does not live alone through the state, but also, and 
 indeed in the first instance through himself. Man, generally 
 speaking, is before the state, and if the state takes from him 
 his existence it puts itself in contradiction with its function 
 and its purpose," ' for the first duty of the state is not to 
 endanger the existence and the support of man.^ And it is 
 claimed with much truth, that if we remember that the sub- 
 ject of the tax is persons, not things, the problem solves 
 itself.3 
 
 2. The Limitation of Exemptions. The argument has thus 
 far assumed that the exemption should be confined to the 
 " minimum of subsistence." But is this " minimum " limited 
 to the absolute necessities of life, or should it extend to a 
 
 ' " Der Mensch lebt unci webt zwar im Staat und fur den Staat, aber das alles 
 nicht allein, sondern er ist auch Selbstzweck ; er ist nicht nur um des Staats willen, 
 sondern auch der Staat ist um des Menscben willen. Ebenso lebt der Mensch 
 durch den Staat, aber das ebenfalls nicht allein, sondern auch, und zwar in erster 
 Reihe, durch sich selbst. Der Mensch ist iiberhaupt vor dem Staat, und wenn 
 hiernach der Staat den Menschen in seiner Existenz angreift, so setzt er sich in 
 Widerspruch mit seiner Aufgabe und seiner Bestimmung." Op. cit., p. 459. 
 
 *IHd. ^ /iid., TpY>. 471-2. 
 
593] ETHICAL PRINCIPLES OF TAXATION 257 
 
 "culture minimum"? In other words, Does the obligation 
 to contribute to the support of the state begin the moment 
 that income exceeds the necessary means of physical sub- 
 sistence, or is the obHgation relative to an arbitrary standard 
 of life? 
 
 In the first place the " minimum " must be sufficient, not 
 only for the subsistence of the person but also for the main- 
 tenance and support of the family. Without such an exten- 
 sion of the " minimum" the race could not be perpetuated, 
 at least under the conditions that promote the highest 
 civilization, the highest development of individual person- 
 ality. Moreover, the family is the natural economic unit — 
 the unit of economic personality, of economic freedom. 
 And without the economic freedom of the family the first 
 important step towards realized personality must remain 
 untaken, the first important step towards the fulfilment of 
 the ends of the state unattained. The family as much as the 
 individual precedes the state — conditions the state. Provi- 
 sion for its subsistence is, therefore, not only a right, but is 
 a "natural right," that the state is in duty bound to respect. 
 To quote Vocke, "The state has the same obligation to 
 recognize the necessary care of the family as a duty prior to 
 its own claims, as it has to recognize that of self- main- 
 tenance." ' 
 
 In the second place, there can be no permanent economic 
 freedom — requisite to permanent economic personality — until 
 the income is sufficient to provide not only the absolute 
 necessities of physical existence, but also to provide for the 
 maintenance of labor power and for times of sickness,* for 
 the family as well as for the self. For a state to levy a tax 
 that would be prejudicial to either of these conditions would 
 be to weaken the source of its own support; and besides, it 
 would be as much a contradiction of its own purpose as to 
 
 ' Op. cit., p. 467. ' Cf. Vocke, ibid., p. 460. 
 
258 JUSTICE IN TAXATION [594 
 
 tax the absolute necessities of physical existence, differing 
 only in degree. On the other hand, until the "minimum" 
 is sufficient to meet these requirements there is no real tax 
 ability, and therefore no tax obligation.' 
 
 But when these requirements have been met, when, that 
 is, there is a " clear" income above the minimum of subsist- 
 ence as above understood, the obligation to aid in the sup- 
 port of the state begins. Or the obligation that was before 
 potential, because of the importance of the state to the indi- 
 vidual, now for the first time becomes actual. If exemption 
 is extended beyond this limit it cannot be as a right, but 
 only on grounds of policy — political, social, or economic. 
 It is true that the limit is somewhat arbitrary, for it is 
 difficult to determine exactly how much should be set aside 
 as necessary for the support of the family or to maintain the 
 labor power of the taxpayer. In fact, the limit is a purely 
 relative one, the standard for exemption necessarily depend- 
 ing upon the accepted standard of life, which is itself con- 
 ditioned by the customs, habits, social ideals and degree of 
 culture attained ; and, above all, by the conditions of indi- 
 vidual and national wealth. Practically the standard must 
 be determined by the same principles that determine the 
 rate of progression. 
 
 Still, it should be remembered that purely on grounds of 
 theoretical justice only provision for normal support, and 
 normal efficiency, should be allowed. For example, allow- 
 ance cannot, or should not, be made for abnormally large 
 famihes,^ since this would be to put a premium upon thrift- 
 lessness and irresponsibility, and thus to encourage an 
 increase of population where most detrimental to society, 
 and to the highest individual development. On the other 
 
 ^ " Die Leistungsfahigkeit aber ist das notwendige Korrelat der Leistungspflicht, 
 welche ohne jene nicht denkbar ist." Vocke, p. 284. 
 * See, per contra, Wagner, op. cit., ii, 447. 
 
595] ETHICAL PRINCIPLES OF TAXATION 259 
 
 hand, if more than the normal efficiency of labor is allowed 
 for in the exemption, it must be because of the retroactive 
 effects of the exemption, or because of the disproportionate 
 cost of the collection of the tax. But with advancing 
 wealth, advancing culture, and advancing civilization the 
 standard of exemption should be raised in conformity with 
 the ends for which the state exists — the progressive develop- 
 ment of mankind. 
 
CHAPTER VIII 
 
 PRACTICAL JUSTICE IN TAXATION 
 
 In the preceding study of the principles of justice in tax- 
 ation, we have not wholly lost sight of the fact that theoret- 
 ical ideals are not always, nay are seldom, fully realizable in 
 practice. Nor have we been unmindful of the fact that 
 economic and social conditions must enter largely into our 
 determination of the ideal. For since the ideal in taxation 
 must necessarily have as its objective point the effects, or 
 results, of this or that system or method of taxation, the 
 nature of the effect must be a controlling influence in deter- 
 mining the character, or the justice, of our ideal. But while 
 we have recognized the relative nature of the ideal of 
 justice in taxation it must be admitted that we have not 
 developed this aspect of the question, but have given our 
 attention almost entirely to theoretical principles. And yet, 
 we insist, not to theoretical principles that are purely vision- 
 ary in the sense that they are applicable only to ideal beings, 
 but principles that are founded upon the ethical nature of 
 man and upon moral and social facts and forces. Neverthe* 
 less, the fact that the dominant thought has been that of the 
 morally right — of justice — has led us to ignore for the most 
 part the possibility of the practical realization of our ideal. 
 So true is this, indeed, that there will be a seeming justice 
 for the critic who urges that our theoretical principles afford 
 no solution to the apparently insoluble problem of practical 
 justice in taxation. Moreover, since the theoretical prin- 
 ciples are unrealizable in practice, the critic may further 
 260 [596 
 
597] PRACTICAL JUSTICE IN TAXATION 261 
 
 urge that there can be no value in these theoretical discus- 
 sions. 
 
 But before we concede the truth of these criticisms let us 
 consider for a moment whether theoretical principles that 
 cannot be fully realized in practice may not after all have 
 some practical value ; indeed, whether the principles them- 
 selves are not to some extent, at least, practicable. In the 
 first place, there is always a practical value in determining a 
 norm for the guidance of real life, or for the guidance of 
 action in the actual happenings of life. Human action un- 
 guided by an ideal can be but irrational, purposeless, and 
 without significance or achievement. This is as true in 
 matters of taxation as in the purely moral life. Indeed, 
 since human action is necessarily social action, a norm of 
 conduct becomes indispensable, for otherwise there could be 
 only the self-seeking of the individual which would be 
 destructive of social life, and so ultimately also of any truly 
 human life. 
 
 But again, Is there nothing practicable in the theoretical 
 principles we have discussed ? The answer to the question 
 must depend upon the meaning we give to the " prac- 
 ticable." But the practicable must mean one of two things : 
 Either a system which is so in harmony with prevailing 
 sentiments and convictions that there is a possibility of its 
 immediate adoption ; or a system of which there is a reason- 
 able hope of adoption by a change in the prevailing 
 thoughts and ideals. Now we maintain that there is some- 
 thing practical in our principles from both points of view. 
 In fact, there is no principle that we have advocated that 
 cannot be found in actual practice in one country or an- 
 other, so that the problem is not so much one of a practical 
 application of new principles as an extension, or fuller 
 application, of accepted principles. But though there may 
 be some principles not in harmony with the sentiments of a 
 
262 JUSTICE IN TAXATION [598 
 
 particular people, there may yet be some practical value in 
 their discussion ; for a nation, like an individual, can pro- 
 gress only as its thought and ideals move ever upward to 
 higher and truer standards. 
 
 But there is yet another point of view from which we may 
 consider the practicability of theoretical principles of just 
 taxation — that of their implications. That is to say, if the 
 principles involve consequences that are impossible to be 
 realized in practice it would seem to be a just charge that 
 the principles are themselves impracticable. What, then, 
 are the implications involved in our principles, if these prin- 
 ciples are to be fully realized? Undoubtedly the student of 
 finance will say : A single tax on incomes. Nay, more, an 
 income tax with progressive and differential rates together 
 with a broad application of the principle of exemptions. 
 Nor can one deny the justice of this judgment. More than 
 this, however, is true ; for there are not a few economists 
 and students of finance who will grant that under ideal con- 
 ditions of human life and human relations — when a sound 
 social ethics dominates human affairs — such a system of 
 taxes would most nearly realize the ideal of justice. But we 
 are not dealing with such ideal conditions, and taking the 
 facts as we find them — the sentiments, prejudices and con- 
 victions of the people — there can be no doubt but that a 
 single progressive tax on incomes is one of the most vision- 
 ary of all possible forms of taxation, particularly with re- 
 spect to the people of the United States. 
 
 But after all, is such an implication, or such a consequence, 
 involved in our theory? The main burden of our whole 
 thesis has been to show not only that the tax burden should 
 be distributed according to the ability to bear it, but to show 
 the grounds upon which such a principle rests. True, it 
 was found that the ability is determined in part by income 
 and in part by the needs which that income must satisfy, and 
 
599] PRACTICAL JUSTICE IN TAXATION 263 
 
 that, therefore, a tax in proportion to ability is necessarily 
 based upon income, though it may be with progressive and 
 differential rates. Yet the fact is recognized (if not before,' 
 it is now) that the tax could not be assessed directly upon 
 income for the reason that only under ideal conditions could 
 the income be ascertained. Nay, to attempt to do so under 
 existing standards of social ethics would be to defeat the end 
 sought by imposing, in many cases, regressive burdens. We 
 have before insisted that the principles of justice are relative, 
 in the sense that they must be tested by results. In the same 
 way must we determine their implications. Because under 
 ideal conditions the implications involve certain results it by 
 no means follows that under actual conditions the same re- 
 sults must occur. In other words, because under ideal con- 
 ditions our principles involve a single tax on incomes, it does 
 not follow that they involve such a tax under the social con- 
 ditions as we actually find them to be. The main thing is to 
 tax ability by taxing income, which is the only ultimate 
 source of ability; but if this income can be reached and 
 ascertained by the indirect method, this method is the one 
 demanded by our principles. Or if the sentiment of the 
 people is against the direct ascertainment of ability the same 
 conclusion follows. In fact, if we could reach the full income 
 by either method it would matter little which one was em- 
 ployed. We must then employ the one that will give us the 
 most accurate results, the one that will most nearly ascertain 
 the true income. Under present conditions this is believed 
 to be that of the indirect method. Indeed, with a proper 
 system it is believed that ability, so far as it is determined by 
 income, can be ascertained with a fair approximation to 
 justice, and such an approximation is all that can be hoped 
 for in human afifairs. And yet the ideal — a tax on income — 
 is not without its value, since it serves as the goal for every 
 indirect system of reaching the income ability of the tax- 
 
264 fUSTICE IN TAXATION [6oo 
 
 payer, for every tax, however assessed, is ultimately a tax 
 on income. 
 
 Assuming, then, the above conditions, it remains to indi- 
 cate the character of a practicable tax system that will most 
 nearly realize the principles for which we have contended. 
 Nor can I do more than to " indicate " such a system. I 
 cannot stop either to elaborate or to defend it. It is beheved, 
 however, that the system which we shall propose is not only 
 perfectly consistent with our principles, but is one of which 
 there is hope for its gradual adoption ; and when adopted 
 will give a realization to justice in taxation such as has never 
 yet been realized in this country, if, indeed, in any country. 
 It is not maintained that all of the principles would be fully 
 realized, as, for example, the principle of progressive taxa- 
 tion, but that we should attain the nearest attainable approx- 
 imation of those principles, and at the same time go a long 
 way towards removing the gross inequalities in the tax 
 systems of our several States.' 
 
 Our present thesis, then, is to outline a scheme of taxa- 
 tion that will most nearly reach the full income of the tax- 
 payer and most equitably distribute the tax burden — most 
 nearly and most equitably, I mean, under existing condi- 
 tions. And this method is believed to be that of the indi- 
 rect one of reaching income through some index, or through 
 indices, of income. Such an index is to be found in prop- 
 erty which, as we have seen, may be regarded either as the 
 source or the consequence of income. And by taking differ- 
 ent forms of property we may get several indices, which if 
 wisely selected will constitute a fair basis for the determina- 
 tion of income. 
 
 But the problem of an equitable system of taxation is 
 something more than this. It is necessary not only to 
 select such indices as shall be fairly representative of in- 
 
 1 For an outline of a rational system of taxation, see Adams, FudUc Finatice. 
 
6oi] PRACTICAL JUSTICE IN TAXATION 265 
 
 come, but such as may be most easily and most fairly 
 assessed — perhaps the most difficult problem in the whole 
 field of practical taxation. For if property is to be made 
 the basis, or measure, of income„an honest assessment be- 
 comes fundamental to an equality of taxation. And, there- 
 fore, very much depends both upon the character of the 
 property taxed and the method by which it is taxed. More- 
 over, much depends also upon the character of the political 
 unit that taxes the different forms of property. Or in other 
 words, the problem is also one of a distribution of the tax 
 system among the different political units in such a way as 
 to realize the best economic and ethical results. 
 
 In brief, then, the problem before us is one of the assess- 
 ment of property, of the methods of taxation, of the kinds 
 of property to be selected for taxation, and the proper 
 spheres of state and local taxation. We cannot stop to dis- 
 cuss the question of rates or of exemptions. Not the ques- 
 tion of rates, because it is admitted that only the propor- 
 tional rate is feasible for the present; not exemption, 
 because the principle is universally adopted in practice, and 
 we do not feel it necessary to add to what has already been 
 said on the subject. And yet we must acknowledge, that 
 the principle of exemption is not carried out in practice to 
 the extent that our principles would demand, not to the 
 extent that we believe to be justified. Still, as previously 
 pointed out, it must be admitted that the limit, or rather the 
 extension of exemption, is relative to the prevailing econ- 
 omic and social conditions of the people and to the econ- 
 omic needs of the state. But assuming the question of 
 exemptions to be on the whole fairly settled, and the ques- 
 tion of rates to be for the present outside of the field of 
 practical discussion, let us attempt to portray in some 
 detail, though briefly, the system of taxation indicated 
 above. 
 
266 JUSTICE IN TAXATION ; 6o2 
 
 I. Assessments 
 
 That equitable assessment is one of the most difficult 
 problems in practical taxation is admitted on all hands. It 
 is the crucial point in the investigations of all tax commis- 
 sions and in all practical plans for the reform of our present 
 methods and systems of taxation. And yet if property is to 
 be made the measure of income — the index of ability — equal 
 assessment is indispensable to justice. Indeed, given an 
 honest assessment of property and the battle for justice in 
 taxation is as well as won. Whether such an assessment 
 maybe approximated will depend very largely upon the char- 
 acter of the property taxed and the method by which it is 
 assessed. What, then, are the conditions that are essential 
 for the equal assessment of property? 
 
 I. Declaration versus Doomage. — Much has been written 
 concerning the relative merits of a declaration by the tax- 
 payer, and doomage by the government. Theoretically the 
 principle of declaration is no doubt the correct one. This 
 follows inevitably from the voluntary character which we 
 found in the relation of the citizen to the state. Yet we 
 found at the same time that there is also a compulsory 
 feature in this relation, which is founded upon the necessity 
 of the state's existence. From the character of this com- 
 pulsion, founded upon a political necessity, it follows that 
 the declaration should be supplemented by the doomage 
 power of the government. This double feature — declaration 
 and doomage — is the prevailing system of our several Com- 
 monwealths, though with some the " declaration," with 
 others the "doomage" is made the key-note of the system. 
 But however much the principle of declaration may conform 
 to the highest ideals of taxation, experience shows that it is 
 not a principle that can be relied upon to attain justice 
 until there prevails a higher standard of social ethics. 
 
 No system can be just, either in theory or in practice, that 
 
603] PRACTICAL JUSTICE IN TAXATION 267 
 
 puts a premium upon perjury by ignoring facts of human 
 nature; that induces perjury on the part of some because of 
 the well-known fact of the perjury of others, perchance with 
 the connivance of officials; that induces perjury because 
 honesty would invite upon one's self a penalty in the form of 
 an assumption of a part of the tax burden that rightfully 
 devolves upon those who have escaped by an act of perjury. 
 It is, for example, within our personal knowledge that an 
 aged widow whose sole means of support is the income from 
 nine thousand dollars loaned on mortgages at five per cent, 
 (a small part at six per cent.), pays a tax of three per cent, 
 because she insists upon an honest declaration ; thus paying 
 in taxes more than fifty per cent, of her small income ! And 
 this is but one of hundreds of similar instances fostered by 
 the perjury systems of taxation in our various Common- 
 wealths. The iniquity and injustice of such a system cannot 
 be too strongly emphasized. These iniquities should be 
 removed by the adoption of some system that will reach the 
 income and distribute the burden according to the income 
 ability of the taxpayer, and not according to the conscience 
 of the individual. 
 
 Such a system, however, is not to be found in the way of 
 a premium upon honest declarations in the form of a lower 
 tax rate on certain forms of intangible property, such as 
 mortgages — a method practiced in Pennsylvania and par-' 
 tially approved by the Massachusetts Tax Commission.^ 
 For such a method of evoking honest declarations is a 
 species of class legislation that purposely relieves a part of 
 the taxpayers from their proper and just share of the tax 
 burden, only to impose it upon those whose visible property 
 prevents their evasion. True, such a method may evoke a 
 
 ' Tax Commission Report, 1897, PP- 88-9. Connecticut has adopted a similar 
 device which the Michigan Tax Commission deems "worthy of most serious con- 
 sideration." Report, 1900, pp. 18-9. 
 
268 JUSTICE IN TAXATION [604 
 
 larger sum of taxes upon a given form of property — intan- 
 gible personalty — than would result from the normal rate 
 upon the declaration (with implied oath') of the individual. 
 But such a concession, or purchased honesty, is quite as un- 
 necessary as it is unjust. For if such property must be 
 taxed there are simpler and more rational methods of reach- 
 ing it. What these mothods are we shall presently consider. 
 Here we wish simply to emphasize the fact that equal 
 assessment is the foundation of justice in matters of taxation, 
 and that that system is inherently wrong and unjust that 
 seeks honest declaration by a veiled method of bribery. 
 
 2. Taxable Property. Before discussing the proper 
 methods of assessments it will be well to consider the kinds 
 of property that should be taxed as most nearly and most 
 adequately representing income, the ascertainment of which 
 is the real aim of the government and the real purpose of the 
 assessment. It follows, therefore, that in the selection of 
 property for taxation two conditions are essential : First, the 
 property selected should be fairly indicative of income, and, 
 secondly, it should be such that its value may be easily 
 ascertained with some degree of truth; for while income is 
 not always proportionate to the value of property, it never- 
 theless remains true that upon the whole the value is a fair 
 index of income. At any rate the value of property is 
 about the only standard, or measure, of income that we 
 have, so long as it is not feasible to ascertain the amount Of 
 income directly. But the justice of such a standard of 
 income depends more than all else upon the equality of the 
 assessment. And this equality, again, depends both upon 
 the kind of property taxed and upon the method by which 
 it is assessed. 
 
 As to the kind of property that best measures tax ability, 
 it is the common theory and practice of our several States 
 
 ' The actual taking of an oath is, I believe, rarely required. 
 
605] PRACTICAL JUSTICE IN TAXATION 269 
 
 that every variety of property is equally indicative, and that, 
 therefore, no form of property should escape assessment. 
 Wagner's devices for reaching every form of property give 
 sanction to this theory. In practice, Ohio has carried the 
 doctrine to very near its extreme limit. The experience, 
 however, in all of our States is a clear demonstration of the 
 utter failure of the attempt to reach ability by any such 
 method. This, indeed, is recognized by most Tax Commis- 
 sions ^ as one of the most patent evils of our tax systems. 
 The fact is that no form of property can be considered as 
 indicative of income, or ability, of which it is morally cer- 
 tain that only a small fraction can be reached. Hence, for 
 purposes of taxation, only such forms of property should 
 be assessed whose value can be determined with some de- 
 gree of accuracy; or, better, perhaps, property should be 
 assessed only in such form as lends itself to the determina- 
 tion of its value. This leads us to remark that we believe 
 the principle of multipficity of taxes to be entirely erron- 
 eous, both in theory and in practice. For apart from the 
 impossibility of determining all forms of property, as men- 
 tioned above, there are certain types of property that are 
 more accurate measures of income than other types, and tax 
 systems should seek such types if such property can be 
 found and its value can be ascertained. Without stopping to 
 develop this feature, it may be remarked that a " habitation' 
 tax," or a tax on house rent, affords an excellent example 
 of what is meant. Such a tax, too, has the advantage that 
 it can be easily ascertained. That, within certain limits, 
 such a tax is a fair measure of income will be generally con- 
 ceded, since the amount paid for house rent is, in general, 
 proportionate to income. So true is this, that it is recom- 
 mended by many French writers and by the Italian econo- 
 
 ' As Massachusetts, Ohio, Wisconsin and Michigan. For the opposite view see 
 minority report of Geo. E. McNeill in Mass. Tax Cora., 1897. 
 
270 JUSTICE IN TAXATION [606 
 
 mist Baer.' It is also recommended in the majority report 
 of the Massachusetts Tax Commission.' Still, it must be 
 admitted that house rent as a measure of incomes must be 
 confined to moderate incomes. For the income of the multi- 
 millionaire house rent would be no measure whatever. Such 
 a tax must, therefore, be used with caution. As a single 
 tax, except upon small incomes, such a tax would be most 
 unjust. Indeed, any form of a single tax must work injust- 
 ice, largely in consequence of the differing effects of shifting 
 and incidence, but partly because of the differing opportuni- 
 ties for evasion. 
 
 The multiple tax is also objectionable because of the cost 
 of assessment and collection, thus violating one of the car- 
 dinal principles laid down by Adam Smith, and since 
 accepted by all students of taxation. Because, then, of their 
 double injustice — evasions and unnecessary costs — multiple 
 systems of taxation should be avoided. But we have seen 
 that the single tax is also objectionable. Hence a wise sys- 
 tem will consist of such a selection of plural taxes as can be 
 based upon forms of property at once indicative of income 
 and of easily ascertainable value. What these forms are will 
 appear a little more in detail as we proceed. But after all, 
 it is, perhaps, not so much the form of the property to be 
 assessed as the method of its assessment that is important. 
 
 3. Methods of Assessment. The problem of equitable as- 
 sessment involves two difficult tasks: The discovery of 
 property, and uniformity of valuation. Though a constitu- 
 tional requirement of most of our states, it is a notorious fact 
 that, with the comparatively few exceptions of " widow's 
 mites," there is not only no pretense at a full valuation, but 
 hardly a pretense at a valuation at a uniform rate. But 
 
 ' Baer, Vavere e V Ifnposta, p. 32. 
 
 * Report, 1897, PP- 104-9. Id opposition see minority report of McNeill, 
 pp. 153-4. 
 
6o7] PRACTICAL JUSTICE IN TAXATION 27 1 
 
 whatever the " pretense," it is the universal verdict of Tax 
 Commissions, tax ofificials, and of students of our taxing 
 systems that uniformity of assessments is an unrealized 
 dream, an ideal of the imagination, to say nothing of the 
 total escape of certain forms of property from all taxation. 
 Lack of uniformity of assessment applies to all forms of 
 property, though to some more than to others, depend- 
 ing in part upon the successful intrigue and deception of 
 owners, in part upon the intelligence and honesty of ofificials; 
 but the complete escape from assessment pertains essentially 
 to intangible property. Let us consider, briefly, each of 
 these problems — the discovery of property and the uniform- 
 ity of its assessment. 
 
 Concerning the discovery of real estate and tangible per- 
 sonal property little or no difficulty arises. The problem, as 
 we have seen, attaches to the discovery of intangible per- 
 sonal property. How, then, is this to be reached? Two 
 methods are possible; Either the compulsory recording of 
 all possessions of intangible property — of mortgages, bonds, 
 stocks, etc. — similarly to the recording of deeds, in order 
 that they may have legal validity; or the taxing of such 
 forms of property by taxing their visible representatives — 
 lands, corporations, etc. With respect to mortgages either 
 method is applicable ; only care should be taken to avoid 
 the injustice of double taxation by taxing both the land and . 
 the mortgage. If the land is taxed to its full value the 
 mortgage is indirectly taxed and should not, therefore, be 
 taxed directly. But if it is deemed best to tax the land at 
 its full value, less the value of the mortgage, and to tax 
 the mortgage directly, then the mortgage should be recorded 
 that its full value may be ascertained without difficulty, and 
 with only a nominal expense. Other credits could be treated 
 in the same manner, though some forms of personal notes it 
 would seem to be advisable to exempt from taxation and to 
 use other indices of income. 
 
272 - JUSTICE IN TAXATION [6o8 
 
 For the taxation of stocks and bonds the only rational and 
 effective method is that which taxes them by taxing the 
 corporation or other property which they represent. Viewed 
 as a tax upon income, as in effect it is, it is the principle of 
 taxing income at its source — a principle extensively practised 
 in the English Income Tax. The extent to which such 
 forms of pro-perty escape assessment is too notorious to need 
 specific proof, there being, as a rule, from 80 per cent, to 
 90 per cent, that wholly escapes taxation.' Nor has any 
 effective method yet been adopted, other than the English 
 method, by which the income from such property can be 
 reached for purposes of taxation. The compulsory record- 
 ing of stocks and bonds would be a decidedly objectionable 
 method, both on account of the expense attending the re- 
 cording, assessment and collection (the stocks and bonds 
 constantly changing hands), and on account of the practical 
 difficulties of the enforcement of such a method ; as where 
 the owner of the stock or bond resides in a State other than 
 that where the corporation is situated, or the stock or bond 
 recorded. On the other hand, it is a simple matter to ob- 
 tain from corporations the amount of their earnings, of their 
 capital, or of stocks and bonds ; and the collection of the tax 
 directly from the corporation has the merit of involving the 
 minimum of expense. It is the absence of a rational system 
 for the taxation of this form of property — the mere pretense 
 of its taxation — that has given to the tax systems of the 
 American States their well-earned opprobrium — begetters of 
 perjury, fraud and injustice. But by the simple expedient 
 of taxing at the source, order and justice may come out of 
 the present chaos and injustice. We shall return to this 
 subject later in another connection. 
 
 'See, for example, Ely, Taxation in Amencan Ciiies ; Seligman, " The Per- 
 sonal Property Tax" (in Essays) ; and the Reports of the Tax Commissions of 
 Massachusetts, Pennsylvania, Ohio, Michigan, Wisconsin and Colorado. 
 
6o9] PRACTICAL JUSTICE IN TAXATION 273 
 
 We have said that the assessment of tangible personal 
 property and of real estate affords but little difficulty. This, 
 however, is true only theoretically. Being tangible, it is true, 
 indeed, that it is theoretically, nay, in a sense, practically 
 possible to discover these forms of property; yet it is a 
 notorious fact that both forms are very unequally assessed. 
 Particularly is this true of tangible personal property in the 
 form of household goods, but a small fraction of which is 
 reached by the tax assessor. The chief difficulty of reach- 
 ing this form of property hes in the fact that every home is 
 felt to be sacred from the intrusions of government officials, 
 a sentiment respected by the officials themselves. The 
 result is that the official assessor must rely upon the tax- 
 payer's declaration, a very unsafe criterion as we have seen. 
 Only injustice can result from such a method. The only 
 feasible solution would seem to be the total exemption of 
 this form of property from taxation. And this suggestion 
 will appear all the more rational when we consider that the 
 purpose of taxing any form of property is to reach the in- 
 come of which the property is but a symbol. True, house- 
 hold goods constitute such a symbol, or index, but only in 
 a very general way, and then only for moderate incomes. 
 But there are other and more certain indices of income which 
 will serve the purpose far more satisfactorily. To obtain 
 substantial justice it is not necessary to seize upon every 
 possible index of income ; but, as we have seen, only such 
 as are at the same time most indicative and most easily 
 applied. 
 
 The case is quite different with real estate. This is upon 
 the whole (though there are exceptions) a just index of in- 
 come, and there are neither sentimental nor technical reasons 
 against its assessment. The problem here is essentially 
 one of the intelligence and honesty of the assessor, his ability 
 to estimate the value of property and to withstand the 
 
274 JUSTICE IN TAXATION [6lO 
 
 temptations of bribery. Nor is this difficulty confined to 
 real estate. Precisely the same difficulties are to be met 
 with in the assessment of corporations, particularly railroad 
 corporations.' In the case of real estate, it is the require- 
 ment of most of our States that it shall be assessed to the 
 full extent of its value, though it is not uncommon to find it 
 assessed, even within the same city, anywhere from 40 per 
 cent, to 75 per cent, of its value.^ Such an inequality of 
 assessment is most unjust in its effects, being equivalent, in 
 extreme cases, to the imposition of a tax upon some greater 
 by 100 per cent, than the tax upon others. And, by the 
 way, we need only to call attention to this intentional under- 
 valuation of real estate to emphasize the gross injustice of 
 taxing the poor widow's mortgage or bond to the full 
 amount of her honest declaration. And yet there is a 
 rational ground for the sixty per cent, valuation — that by 
 decreasing the amount of the tax valuation, with a conse- 
 quent increasing of the tax rate, there will result a tendency 
 to check extravagant appropriations and squandering of the 
 public funds. But whatever the basis of the assessment it 
 should be uniform. The real difficulty, however, is to 
 obtain an equal assessment of all property on any accepted 
 basis, of real estate as well as of other forms of property. 
 Yet the taxation of real estate is demanded on poHtical, 
 economic, and ethical grounds. 
 
 ' In the decennial appraisement of Ohio in 1900 the railroad property in many 
 counties was assessed at about 12 per cent, of its value. Notably was this so in 
 Cuyahoga county (Cleveland). This condition was made possible by a vicious 
 system of appraisement (by county auditors) which lent itself to a system of indi- 
 rect bribery through the grant of railroad passes to the assessors — the auditors. 
 
 * Such was the fact in the appraisement of real estate in Cleveland in 1900, as 
 the writer was reliably informed by a real estate owner who made personal inqui- 
 ries of the different assessors. It was within the personal knowledge of the same 
 authority that in the assessment of 1890 large owners of real estate got low assess- 
 ments by bribing the assessors through a third party. 
 
6ii] PRACTICAL JUSTICE IN TAXATION 275 
 
 What, then, is the solution of the problem — i. e., of uni- 
 form and honest assessments? The remedy lies very 
 largely with the taxpayers themselves. For first and fore- 
 most is the necessity of honest and efficient assessors,' with- 
 out which any system of taxation may be made to work 
 injustice, while with them any systems in themselves defec- 
 tive may be made to realize substantial justice.^ But while 
 very much depends upon the character of the assessors, the 
 methods of assessment are also of much importance. For 
 however honest and intelligent the assessors, there can be 
 only a chance equality of assessment, unless there is some 
 common basis for the determination of values and some 
 common agreement for the percentage of valuation. What 
 method will best accomplish the desired result we cannot 
 stop to discuss. We may note, however, that it lies in the 
 direction of a more centralized control of assessments, the 
 degree of centralization being determined by the character 
 of the property assessed : the taxing area for real estate 
 being the township, county or city ; that for railroads and 
 other corporations the state. There should also be fixed 
 and uniform rules for determining values and a rigid enforce- 
 ment of some fixed percentage of valuation. But so long as 
 the matter rests very largely upon the judgment of in- 
 dividual, local assessors, the pretense of justice becomes a 
 farce. With some such system as suggested, and with. 
 intelligent and honest assessors, a fair approximation of jus- 
 tice may be attained. But the methods of assessment are 
 closely allied with a system of taxation, to which let us next 
 turn our attention. 
 
 ^ See last note. 
 
 ' Cf. Report of Professor Bolles in Report of Pennsylvania Revenue Commis- 
 sion 0/1887, P' ^57- 
 
276 JUSTICE IN TAXATION [6i2 
 
 II. The True Tax System 
 
 In the preceding discussion it has been pointed out that a 
 just system of assessment involves a direct assessment by 
 the taxing authorities, a consequent wise selection of the 
 kinds of properties to be taxed, and methods of assessment 
 that shall reach all assessable property equally. Without 
 stopping to discuss these methods in any detail it was indi- 
 cated that they should be such as to eliminate, as far as 
 possible, any personal factor within the same taxing political 
 unit — eliminate, that is, the individual judgments of different 
 assessors as well as the personal declarations of the assessed ; 
 thus diminishing, on the one hand, bribery and corruption, 
 and, on the other hand, deception and perjury. It was also 
 pointed out that in the choice of taxable property three 
 things must be considered : The indicativeness of the prop- 
 erty as a measure of income — the ultimate source of all 
 taxes; and the readiness with which the taxed property 
 lends itself to equitable assessment ; and finally, that this 
 readiness, or equality of assessment (and, we may add, of 
 taxation), depends very largely upon the tax system; or, in 
 other words, upon the kind of taxes and the methods of tax- 
 ation, and the distribution of the different taxes among the 
 different political taxing units. 
 
 With, then, a wise system of taxation — a proper choice of 
 subjects and methods, and a proper distribution — it is be- 
 lieved that much would be accomplished in the way of re- 
 moving the glaring absurdities and inequalities of present 
 methods, and for the practical introduction of the principle 
 of " equality of burden " as based upon " ability," so far, at 
 least, as ability is measured by income. A brief considera- 
 tion of such a system, which we must confine to the barest 
 outline, will supplement our remarks upon assessment, and 
 at the same time point out what be believe to be a rational 
 system of taxation that will at once realize substantial jus- 
 
• 
 
 6i3] PRACTICAL JUSTICE IN TAXATION 277 
 
 tice in taxation and come within the realm of the practicable 
 — essentially conform to the ideals of justice and to the re- 
 quirements of practical application. Let us consider, then, 
 the outline of such a system. 
 
 I . Subjects and Methods of Taxation. We have already 
 indicated the principles that should determine the choice of 
 subjects — i. e., of property — for taxation, and also the rela- 
 tion which this choice bears to equitable assessments, which 
 will appear further as we proceed. Our present purpose is 
 to give an outline of the more important subjects for tax- 
 ation that will realize the requirements of these principles. 
 No attempt will be made to weigh the pros and contras of 
 dififerent kinds of taxes. Our aim shall be positive and con- 
 structive, rather than negative and by elimination. Yet we 
 may again emphasize the fact that no rational system of tax- 
 ation can contain a "general property tax" which treats 
 alike taxes on real estate, on tangible, and on intangible 
 property. Nor is it necessary to add to what has already 
 been said in justification of this conviction. We shall, 
 therefore, assume the abandonment of the " general property 
 tax," as such, in compliance with the logic of experience 
 and the all but universal opinion of expert testimony.' This, 
 however, does not imply that some forms of property are to 
 escape taxation altogether. On the contrary, so far as they 
 are proper subjects for taxation they will be taxed equally- 
 (at least more equally), and will be taxed in fact and not 
 merely in name, but under a different name and by dififerent 
 methods than those now in vogue. 
 
 The system of taxes which we have in mind may, perhaps, 
 best be outlined by a consideration of taxes on consumption, 
 on real estate, on personal property (tangible only), on 
 mortgages, on corporations and on inheritances; though 
 special assessments, fees and fines should have their place 
 
 * As Dunbar, Taussig, Seligman, Adams and Ely. 
 
278 JUSTICE IN TAXATION [6 1 4 
 
 in the system. These, however, have for their purpose local 
 improvements, special benefits, or penalties and must, there- 
 fore, be passed over in a scheme for general taxation based 
 
 upon ability.' 
 
 ( I ) Taxe^ on Consumption. If it were true that all in- 
 comes are spent in personal satisfactions and enjoyments 
 there would be much to be said for the contention of Sir 
 WilHam Petty: that "a man is actually and truly rich 
 according to what he eateth, drinketh, weareth, or in any 
 other way really and actually enjoyeth ;" and that, therefore, 
 •' every man ought to contribute according to what he taketh 
 to himself, and actually enjoyeth." = But such a condition of 
 things would be true only under the circumstance that the 
 total income was spent in this manner, a circumstance that, 
 as a rule, would happen only with moderate incomes. 
 Indeed, with the enormous development of savings banks 
 and other means for making small investm.ents — stocks, 
 bonds, etc. — it does not apply universally to even moderate 
 incomes. And yet with moderate incomes (especially with 
 the more moderate incomes) expenditure is a very fair index 
 of income, and a tax on expenditure a very fair approxima- 
 tion to justice. But such a tax would reach only a fragment 
 of the larger incomes, and hence is objectionable as a single 
 tax; and, besides, has the further objection that there are 
 many technical difficulties in the way of its execution, so far 
 as there should be an attempt to reach every possible form 
 of consumption. 
 
 But while there should be other forms of taxes to reach 
 the parts of income that do not find their way to personal 
 "enjoyments," a tax on consumption is a legitimate and 
 
 ' For a full report of these sources of revenue see Seligman, Essays, ch. ix. For 
 criticism of Prof. Seligman's " special assessments " and " fees," see Bastable, 
 Public Finance, "p^. 153-6. 
 
 ' letty, A Treatise of Taxes and Contributions, p. 83. 
 
6i5] PRACTICAL JUSTICE IN TAXATION 279 
 
 necessary part of every tax system that seeks to reach 
 income by the indirect method, since in all cases consump- 
 tion does afford some index of income ; in many cases a 
 fairly perfect index. But such a tax should be applied indi- 
 rectly, as by customs duties, taxes on manufactures and cor- 
 porations, and taxes on real estate — lands and houses — not 
 only to realize economy in assessments and collections and 
 the Smithian canon of "convenience" in time of payment; 
 but also to avoid any possible antagonisms that might arise 
 on account of the strong popular sentiment against personal 
 inquisitions on the part of the government, as a violation of 
 individual liberties. Such a tax, too, lends itself very 
 fittingly to the higher taxation of larger incomes by means 
 of heavy taxes on articles of luxury. To carry out this pur- 
 pose, however, would require the non-taxation of articles of 
 necessity with a constantly increasing rate for articles of 
 decreasing necessity. But it must be admitted that no such 
 scientific system is possible with protective tariffs. 
 
 But though it may not be possible to realize the ideal 
 system of consumptive taxes, they should form an essential 
 feature in any tax system ; not only for the reasons given 
 above, but also for political reasons. For though a direct 
 tax is important as tending to stimulate an active interest in 
 the government, and to check extravagance in expenditures, 
 an attempt to raise all public revenue from direct taxation 
 would result in social revolution, or a niggardliness that 
 would effectively cripple the government in the performance 
 of its functions. For, however much we may philosophize 
 about taxes, there is much truth in the statement made by 
 Mr. Buck, of Kentucky, in the early debates in Congress on 
 the subject of taxation: That "taxes are always disagree- 
 able, and it is with reluctance that people consented to 
 .pay any, except they saw advantage arising from the pay- 
 ment of them greater than to counterbalance the evil of pay- 
 
280 JUSTICE IN TAXATION [6i6 
 
 ing." ^ Hence the importance of supplementing direct taxes 
 with indirect taxes, particularly in the taxing system of a na- 
 tional government. It is not less true that the indirect tax 
 should be supplemented by direct taxes ; in part to offset the 
 uncertainty of the incidence of indirect taxes, in part because 
 of their greater certainty and economy, and in part because 
 of their direct relation to the government. Most important 
 among these are property taxes and taxes on inheritances. 
 We omit the income tax because of its admitted impractica- 
 bility. Let us briefly consider the property and inheritance 
 taxes viewed as essential parts of a good tax system. 
 
 (2) Taxation of Real Estate. The taxation of real estate 
 is theoretically simple enough. It is one of the oldest, as 
 well as the most universal, of all taxes. Indeed, the fact that 
 real estate is a source of income, cannot be hidden from the 
 assessor, and has an immediate relation to and dependence 
 upon the expenditures of government, makes it a peculiarly 
 fitting subject for taxation. And yet, as we have seen, under 
 present systems there is no guaranty of an equality of assess- 
 ments and of burdens, either between individuals or between 
 different political units. Nor, for the former inequality, is there 
 any effective remedy other than the adoption of a uniform 
 basis for assessments, a larger use of ofificial records — deeds, 
 bequests, mortgages, etc. — and the choice of men of char- 
 acter and intelligence for assessors ; while the remedy for 
 the latter inequality — that between different political units — 
 is to be found very largely in an entire rearrangement and 
 readjustment of the tax system, on the basis of greater fiscal 
 independence of the different political divisions within the 
 same system of government — a question which will come up 
 for consideration later. 
 
 Upon the justice of levying upon real estate for purposes 
 
 ^Annals of Conp'ess, 4th Cong., 2d Sess., p. 1862. Cf. also speech of Mr. 
 Richardson, of Tennessee, 14th Cong., ist Sess., p. 84. 
 
6l7] PRACTICAL JUSTICE IN TAXATION 281 
 
 of public revenue there is" no difference of opinion. It con- 
 forms to the ideal of taxation according to ability, since the 
 value of real estate is determined very largely by its income- 
 producing power, if we omit the exceptional cases of the 
 speculative holding of land. With this exception, it is in the 
 main true that land, buildings and machinery, and dwelling 
 houses have their value fairly represented in the capitalized 
 amount of the income derived from them. Hence, omitting 
 as we do in the present discussion the question of progres- 
 sive and differential rates, a tax based upon the valuation of 
 such forms of property is a fair approximation of a tax based 
 upon the derived income, and so likewise a fair approxima- 
 tion of justice. That such taxes may and do become, in 
 part at least, taxes upon consumption does not lessen their 
 effectiveness or their justice. With a rational and stable 
 system of taxation, the burden will adjust itself fairly in the 
 long run. To this end, however, it is important that other 
 forms of property should be reached. 
 
 (3) Taxation of Personal Property. A sound and just 
 system of taxation must include taxes whose ultimate inci- 
 dence shall bear upon productive personalty, as well as those 
 that bear upon productive realty. To reach personal in- 
 comes it may be necessary, also, to tax some forms of un- 
 productive personalty ; unproductive, that is, to the con- 
 sumer in the sense that Adam Smith used the term. In- 
 deed, such taxes are taxes upon consumption, which have 
 already been sufficiently considered. Yet we may perhaps 
 add, that to us there is some question whether household 
 goods should not be exempted from taxation ; not only be- 
 cause they are at best but very roughly indicative of income, 
 but because such a tax must always be upon but a nominal 
 part of the total amount, and that, too, in very unequal por- 
 tions ; must, that is, so long as public sentiment remains as 
 it is concerning the sacredness and privacy of the home. 
 
282 JUSTICE IN TAXATION [6i8 
 
 Moreover, there is little of a scientific character in a system 
 of taxation that places unproductive personalty, which is 
 only roughly indicative of income, upon exactly the same 
 basis as productive property. 
 
 On the other hand, such forms of tangible personalty as 
 farming implements and live stock may well be included in 
 the tax system, not only as indicative of income but as also 
 productive of income; while they are at the same time easily 
 assessable ; in fact, for the reasons just given, tangible person- 
 alty in general should be included in any well rounded sys- 
 tem of taxation, and taxed in the same direct manner as 
 realty. The same cannot be said of intangible personalty. 
 As already sufficiently shown, every attempt of this nature 
 leads to the grossest inequalities (to say nothing of perjur- 
 ies), while its enforcement is a practical impossibility; this 
 impossibility, indeed, being the occasion of the inequalities. 
 Some other method than the direct one must, therefore, be 
 found for reaching the income that has its source in this 
 form of property ; or, rather in the forms of property that 
 stand back of and are represented by the intangible forms — 
 mortgages, stocks, bonds, etc. Such a method, and indeed 
 the only practicable method, is to be found in the taxation 
 of this class of income at its source. In this way alone can 
 evasion be avoided and the burden equitably distributed. 
 As the form of property under consideration is most largely 
 represented by mortgages and by stocks and bonds, we may 
 consider briefly the best method of taxing these at their 
 source, which will indicate the true method of taxing the in- 
 come from all forms of intangible personal property. 
 
 (4) Taxatio7i of Mortgages. The proper method of tax- 
 ing mortgages has, perhaps, been sufficiently indicated in 
 our discussion of methods of assessment. Either the real 
 estate, which is represented by the mortgage and is the 
 source of its income, should alone be taxed, leaving mort- 
 
6l9] PRACTICAL JUSTICE IN TAXATION 283 
 
 gagor and mortgagee to make the proper adjustment of 
 interest; or, if the mortgage is taxed, the tax should be 
 based upon a compulsory court record, similar to the re- 
 cording of deeds. At the same time, the amount of the 
 mortgage should be deducted from the value of the real 
 estate that is back of it, according to some such methods as 
 those in vogue in Massachusetts and California/ There is 
 but one source of income, and therefore but one source of 
 ability. Hence, to tax both the land and the mortgage is to 
 inflict the patent injustice of a double taxation on that part 
 of the income from land that goes to pay the interest of the 
 mortgage. The better method would seem to be to tax the 
 land and exempt the mortgage, since the land is the direct 
 source of the tax-paying power. Certain it is, at any rate, 
 that the present methods of taxing mortgages are open to so 
 many possibilities of evasion that only the most flagrant 
 inequalities can result, the amount of the mortgages taxed 
 being directly proportional to the sensitiveness of the con- 
 sciences of the mortgage holders. 
 
 (5) Taxation of Corporations. A still more important 
 form of intangible personalty is to be found in corporate 
 stocks and bonds, whose income-producing power is to be 
 found in the corporation. In fact, the net earnings of cor- 
 porations are, in the main, distributed to the holders of these 
 stocks and bonds. If, then, we levy a tax upon the net 
 earnings of a corporation, we thereby impose a tax upon the 
 incomes of its stocks and bonds at their source. The ease 
 with which the imposition of such a tax may be effected, 
 and the unquestioned impossibility of reaching this class of 
 income by the direct method, make the method of taxing at 
 the source the only rational and scientific method of taxing 
 income of this character. 
 
 'See Report of Massachusetts Tax Commission, 1897, P- 7> ^nd Plehn, The 
 General Properly Tax in California (Economic Studies of Am, Econ. Ass.), 
 pp. 126-7 ^^^ *48' 
 
284 JUSTICE IN TAXATION [620 
 
 The principle of taxing incomes at their source is now 
 very generally recognized by economists to be the only 
 sound principle of public finance. This is done in the case 
 of real estate, and it is believed that the same principle 
 should be applied in the taxation of intangible personalty. 
 Not only is this the most practicable and most effective 
 method, but it is the most economic, entails the least incon- 
 veniences, and is the most equitable in its results. By elimin- 
 ating the intangible forms of property and the personal 
 equation in assessments, evasions would become practically 
 impossible; while by reaching the whole income there is 
 secured a uniformity in the distribution of the tax burden. 
 And since such a tax necessarily bears upon individual in- 
 comes, it meets the ethical requirement of the imposition of 
 a tax upon the source of ability. 
 
 Granted, then, the principle of taxing the incomes from 
 stocks and bonds at their soujce, and that individual tax 
 ability — so far as conditioned by such holdings — is reflected 
 in the corporate ability — i. e., in the corporate net income — 
 the question arises : How, or in what manner, may this cor- 
 porate ability be most effectively and most efificiently 
 reached? Our answer to this question must be very brief, 
 and somewhat dogmatic. The problem of the taxation of 
 corporations is too large and too complex to be treated with 
 any fulness in the closing chapter of a treatise on the prin- 
 ciples of justice in taxation.' 
 
 Thirteen different methods are given by Professor Selig- 
 man for taxing corporations.' These are reduced to three 
 by Professor Adams : as based upon property, upon the 
 volume of business, or upon earnings.^ Both, however, 
 
 ^ For a thorough treatment of the subject see Seligman, " Taxation of Corpora- 
 tions," Essays, ch. 6, 7 and 8. For an excellent brief statement see H. C. Adams, 
 Public Fifiatice, pp, 446-466. 
 
 * Seligman, op, cit., pp. 177-9. ' Adams, op. cit., p. 454. 
 
62l] PRACTICAL JUSTICE IN TAXATION 285 
 
 agree that the true measure of corporate ability is to be 
 found in the net income of the corporation ; and it must be 
 evident that there can be no other standard. The limitation 
 made by Professor Adams in the case of railroads : that the 
 tax should be based upon the net "income from operation," 
 is important only in calling attention to the fact that double 
 taxation should be avoided in the case of leased corpora- 
 tions.' Undoubtedly, if the leased corporation is taxed, the 
 basis of a corporation tax should be the " earnings from 
 operation; " but if only the operating companies are taxed, 
 the basis of the tax should be based upon the total net in- 
 come. In any case the taxable net income should include 
 the gross earnings, minus operating expenses ; but not 
 deducting the outlay for interest, rent, taxes, or improve- 
 ments.^ 
 
 Accepting, then, corporate net income — not the net in- 
 come to stockholders and bondholders — as the true basis of 
 corporation taxes, it ddes not follow that the desired end 
 can be reached best, in all cases, by imposing the tax 
 directly upon the net income. Whether or not this is the 
 best method must depend upon the practical possibility of 
 uniform and fixed rules of accounting. But according to 
 Professor Adams,^ such a system of accounting is prac- 
 ticable. We may, therefore, accept the net income basis as, 
 upon the whole, afTording both the best theoretical and best 
 practical basis for corporate taxation. But if in any parti- 
 cular case such a method is not practicable, we must agree 
 with Professor Seligman that a tax based upon the market 
 value of stocks and bonds will most nearly realize the ends 
 of justice, being, besides, " certain and simple of enforce- 
 ment."'* It is only, or chiefly, because the market values of 
 stocks and bonds are not always determined by their net 
 
 ' Adams, ii>id., pp. 460-1. C/. Seligman, Essays, p. 199. 
 
 « C/. ibid., p. 461. ' Ibid. * Essays, p. 212. 
 
286 JUSTICE IN TAXATION [622 
 
 incomes, that this method of taxing corporations is not al- 
 ways the most just, as it is the most simple. 
 
 The correct determination of the basis of assessment, 
 however, is by no means the least difficult problem in the 
 taxation of corporations. There would, indeed, be little 
 difficulty if the tax were aimed at the corporation per se, or 
 if stockholders and bondholders lived wholly within the tax 
 area of the corporation. But from our present view-point, 
 the subject of the tax is not the corporation, but its indi- 
 vidual stockholders and bondholders ; who, moreover, are 
 scattered throughout various areas of taxation. Yet theoret- 
 ically, at least, the problem is easy of solution. For all that 
 is necessary is that there should be, among the different 
 commonwealths concerned, a uniformity in the methods of 
 taxation, based upon a common agreement respecting the 
 taxation of resident holders of stocks and bonds of foreign 
 corporations, and of foreign holders of the stocks and bonds 
 of domestic corporations. 
 
 The only ethical or logical basis for such agreement is, 
 that each commonwealth should tax only such portion of the 
 net profits as are earned within its borders ; this portion 
 being determined, for practical reasons, on the basis of mile- 
 age, gross earnings, amount of business, or capital within 
 the commonwealth, according to the nature of the industry. 
 In other words, the net income taxed within a given com- 
 monwealth should bear the same proportion to the total net 
 income that the mileage, gross earnings, etc., within the 
 commonwealth bears to the total mileage, or gross earnings, 
 etc. The assumption here is, that the net income within any 
 area is proportional to the mileage, earnings, business or 
 capital within the same area; and if the choice of these 
 methods is wisely made, according to the character of the 
 corporation, substantial justice will be attained, though only 
 if there is uniformity throughout all of the commonwealths. 
 
623] PRACTICAL JUSTICE IN TAXATION 287 
 
 Such, in brief, is the ideal of corporate taxation, as a 
 means of reaching the individual abilities of stockholders and 
 bondholders. Practical obstacles in the way of state consti- 
 tutions, and the uncertainties of " politics," do not, however, 
 promise a speedy realization. Nor does this doubt grow less 
 when we contemplate the fact that not one of the American 
 States has ever adopted the recommendations of its various 
 expert Tax Commissions. Nevertheless, the practice in 
 some of the states is evidence of a tendency in the right 
 direction.' But for some time, at least, we shall have to put 
 up with the injustice of double taxation; an injustice that is, 
 perhaps, very largely nullified in the fact of extensive eva- 
 sions under present methods of taxing stocks and bonds. 
 
 (6) Taxation of Inheritances. Concerning the inherit- 
 ance tax we may be very brief. It is now very generally 
 justified and very generally adopted. We may consider it 
 from two points of view : That of the decedent and that of 
 the heir. Viewed with respect to the ability of the former, a 
 taSnipon the inheritance must find its justification in the 
 assumption that past taxes have been evaded, but have held 
 a permanent lien upon the property. While there is much 
 ground for this theory,^ it applies only to personal property, 
 and even then is but the crudest approximation to justice, 
 since the amount of the evasion is an incalculable quantity .3 
 
 The more correct point of view, however, is undoubtedly 
 that of the heir, or legatee. And from this viewpoint the 
 justice of the tax is to be found in the increased ability aris- 
 ing from the inheritance, or legacy. According to both 
 
 1 For examples and a fuller discussion of the interstate taxation of corporations, 
 see Seligman, Essays, pp. 223-254. 
 
 * A lady in New York, the sole heir to her father's estate, told the writer that 
 her father never paid a personal property tax, though at the time of his death he 
 held stock in ten different banks. 
 
 ' Cf. Seligman, Essays, p. 131. 
 
288 JUSTICE IN TAXATION [624 
 
 Professor Seligman and Doctor West, this ability arises from 
 the fact that the inheritance should be regarded as an " acci- 
 dental income " — measuring ability like other incomes — and 
 the tax as an "accidental income" tax.^ This is no doubt 
 the true attitude to take in the case of small inheritances that 
 are spent in the manner of regular incomes. But to us the 
 argument is not so evident with respect to the inheritance of 
 productive property, from which there is the enjoyment of 
 only the annual income. From the viewpoint of income, the 
 ability of the heir is increased, practically at least, only by 
 the amount of the increase of his annual income ; and, theo- 
 retically, this increased ability should be reached by pro- 
 gressive rates, if not also with differential rates on account 
 of the source. Certainly, from the viewpoint of the govern- 
 ment, there has been no increase of social ability, because 
 no increase of social income ; but only a transference from 
 decedent to heir. 
 
 True, there is a sense in which the whole inheritance may 
 be regarded as a gratuitous and "accidental" income, there- 
 fore increasing by its full amount the ability of the heir. If 
 this is the correct view, then, logically and justly, this income 
 should be treated like other incomes of the same class. If 
 this is the only basis and justification of the tax, there 
 should be the same principle of rates that is applied to other 
 incomes, no allowance being made for degrees of relation- 
 ship. But this is seldom advocated in theory, and is nowhere 
 applied in practice. If, indeed, this theory be true, then are 
 the existing arbitrary rates and distinctions of relationship 
 both illogical and unjust. The fact that they are both justi- 
 fied and practiced is evidence that the " accidental income " 
 theory is, at least, not the only consideration in the inherit- 
 ance tax. The theory at least assumes that the true tax prin- 
 ciple should here be deviated from on grounds of policy or 
 
 * Seligman, Essays, p. 132, and West, Tke Inheritance Tax, p. 118. 
 
62 5] PRACTICAL JUSTICE IN TAXATION 289 
 
 sentiment. Whatever truth, therefore, there may be in this 
 theory of the inheritance tax, it is not a theory that permits 
 of logical application in practice. It needs, too, to be sup- 
 plemented by other considerations. 
 
 We shall not attempt, however, to discuss the various 
 theories of the inheritance tax — cost of service, value of ser- 
 vice, co-heirship, escheat, etc. All of them, as Dr. West 
 says, contain some element of truth, and therefore to that 
 extent afford some justification for the tax. Not only is this 
 tax justified on theoretical grounds, but it has also the prac- 
 tical merit of being difficult to evade, and of occasioning 
 little disturbance of industry ; besides being less oppressive 
 and less reluctantly paid than most other taxes. Viewed in 
 all of its aspects it forms a necessary adjunct to any scientific 
 system of taxation. We cannot, indeed, quite agree with 
 the implication in the statement of Dr. West that " no tax is 
 better adapted to replace the antiquated personal property 
 tax," ' since this implies substitution. The true substitute for 
 these antiquated taxes lies, as we have seen, in the direction 
 of a tax on corporations, though the inheritance tax (on per- 
 sonal property) may well be used as supplementary to the 
 corporation taxes. 
 
 In the above outline of a system of taxation no attempt 
 has been made to exhaust every legitimate source of public 
 revenue, but only to indicate the main features of a scientific 
 system that will most nearly conform to the theoretical prin- 
 ciples of justice — a tax based upon ability, so far as this 
 ability is measured by income. We have omitted a discus- 
 sion of rates, because, as we have said, we believe that 
 undfer the prevailing sentiment on this subject this is not, in 
 this country at least, a practical question, though without 
 the progressive rates the highest ideals of justice in taxation 
 must remain unattainable. Of the principle of exemptions 
 
 'West, op.cit.,^. 132. 
 
290 JUSTICE IN TAXATION 626 
 
 we need only to say that it is fairly well realized in practice, 
 though, as previously pointed out, we beheve that there 
 should be further extensions of the principle, at least in 
 some cases, in order to correspond to the progressively 
 higher standards of living. There is, however, another 
 question of great practical importance, which, because of its 
 immediate bearing upon the execution of such a system as 
 that outlined above, is, indeed, an essential requisite to such 
 a system, and therefore should constitute a vital part of it. I 
 refer to the separation of state and local taxes, which let us 
 in conclusion briefly consider. 
 
 2. State and Local Taxation. The importance of the 
 separation of national, state, and local taxation is another of 
 those financial questions upon which there is now very gen- 
 eral agreement.' This granted, the question arises: On 
 what basis should the distribution of taxes be made? Ac- 
 cording to Professor Bastable it cannot be made on the 
 ground of a difTerence of governmental duties, since there is 
 no correlation between these duties and tax systems. Hence 
 the distribution must be made on financial and economic 
 grounds." This is, no doubt, in part true. But in this 
 country, at least, it should be modified by the more correct 
 view of Professor Adams : That " a government should 
 select for purposes of taxation those industries with which 
 it holds some fundamental or constitutional relations." 3 In 
 other words, while financial and economic conditions are im- 
 portant factors in determining the political distribution of 
 taxes, the governmental relation to the industry taxed is, 
 perhaps, of prime consideration. Indeed, it is this relation 
 that very largely determines the financial conditions. The 
 principle may be best illustrated by calling attention to the 
 
 ' For a very good treatment of this question see Adams, Public Finance, ch. 
 7. Cf. also Bastable, Public Finance, iii, 6. 
 
 * Bastable, op. cit.. pp. 367-8. 3 Adams, op. cil., p. 493. 
 
627] PRACTICAL JUSTICE IN TAXATION 29 1 
 
 more important taxes that should be assigned to national, 
 State and local revenue. 
 
 [i) Natio7ial Taxes. The revenue system of our national 
 government is so thoroughly established that there could be 
 only a speculative interest in a discussion of possible reforms. 
 At the very outset the policy was adopted of relying solely 
 upon indirect taxes, leaving all direct taxes for the States. 
 At first it was thought that sufficient revenue could be ob- 
 tained from customs duties, but it was very soon learned 
 that they would be inadequate, and so excise duties were 
 added. Only twice have direct taxes been resorted to, and 
 with the exception of war periods customs and excises (on 
 spirits, malt liquors and tobacco) have been, and promise 
 long to remain, the chief source of national revenue. Nor is 
 this without much reason. For, as Professor Adams shows, 
 not only do they meet his requirement in the governmental 
 selection of taxes, but they also give realization to the im- 
 portant fiscal principle of permanence of government revenue. 
 To realize the other important principle — that of elasticity — 
 Professor Adams would have a national tax on interstate 
 commerce. However desirable such a tax may be, there 
 would seem to be little chance of its adoption in the near 
 future. 
 
 The national system of indirect taxes is not without other 
 important merits. For, however desirable it may be, from a 
 theoretical point of view, .that the citizen should pay a direct 
 tax, in order to emphasize his responsibility to the government 
 and make him watchful over expenditures, there can be no 
 doubt, as we have seen, but that a dependency upon a direct 
 tax would greatly cripple the efficiency of the government. 
 Moreover, the rather indirect relation of the citizen to the 
 national government, at least his remoteness from its opera- 
 tions, goes far to justify the indirect tax for national pur- 
 poses. Again, if we suppose the tax to retain anything of 
 
292 JUSTICE IN TAXATION [628 
 
 permanency it will be found, in the long run, fairly to dis- 
 tribute the burden according to ability; so far, at least, as 
 ability is determined by consumption. 
 
 (2) State Taxes. For the same reason that customs 
 duties and excise taxes were assigned to national revenue — 
 that of the peculiar relations of the industry taxed to the 
 government — there should be assigned to State revenue the 
 taxation of corporations and quasi-public monopolies. Be- 
 ing dependent upon, and under the regulations of, the State 
 governments, there is a peculiar fitness in their taxation for 
 the purposes of State revenue. Such a tax would be diffi- 
 cult to evade, and would have the fiscal importance of being 
 easily and economically collected. At the same time it 
 would meet the requirements of permanence and elasticity. 
 Moreover, under conditions similar to those assumed in the 
 case of customs and excises, there would be a fair distribu- 
 tion of the burden. 
 
 To these taxes might also be added the inheritance tax. 
 Certainly, upon the principles set forth above, the inheritance 
 tax does not properly belong to the system of national taxes. 
 So far as the inheritance tax is regarded as a fee for cost or 
 value of service in the transference of property, it belongs 
 more properly to county taxes ; but so far as regarded on 
 the principle of escheat, of co-heirship, or of guaranteeing 
 the right of inheritance, it is very properly a State tax. As 
 grounded upon the idea of compensation or of ability, it 
 should be distributed between State and local governments. 
 On the ground of the dependence of the inheritance upon, 
 and its control and protection by, the government, the in- 
 heritance tax belongs, again, more properly to the system of 
 State taxes. On fiscal and economic grounds there is also 
 reason for this disposition of the inheritance tax. Upon the 
 whole, the inheritance tax should go into the State revenue, 
 except, perhaps, such portion as might be necessary for the 
 
629] PRACTICAL JUSTICE IN TAXATION 293 
 
 probate fees, or other expenses incidental to the conveyance. 
 But we fail to see any good reason why this tax should be 
 assigned to any specific purpose, such as State education, as 
 suggested by Professor Adams.' 
 
 With these two sources it is beheved that ample revenue 
 would be supplied for all of the necessary expenses of the 
 State governments. As Dr. West says: "The experience 
 of New York with the inheritance tax and the experience of 
 a number of States with corporate taxes show that by these 
 two methods of taxation alone most, if not all of the State 
 governments, could pay all of their expenses, leaving all 
 taxes on property to local political divisions." =" 
 
 (3) Local Taxes. We have left, then, for local taxation, 
 land, houses, manufacturing plants and real estate generally ; 
 also tangible personal property and municipal licenses and 
 franchises. Since county expenses are mainly devoted to 
 the improvement of roads and bridges, which add materially 
 to the value of the surrounding lands, it is very fitting that a 
 land tax should constitute the chief source of county 
 revenue. For township purposes there is the tangible per- 
 sonalty and real estate, including the real estate of corpora- 
 tions. While for municipal expenses we have, in addition 
 to the property taxes of townships, municipal licenses and 
 franchises— such as those of street railways, water works, 
 lighting plants, etc. A special justification for this assign- 
 ment of local taxes is not needed, since it is directly in- 
 volved in the principles of distribution of national and state 
 taxes. If further justification were needed it might, 
 perhaps, be found in the fact that in local taxation, as 
 distinct from national or state taxation, there is some justi- 
 fication in the application of the benefit principle as a basis 
 of taxation. It may be added, too, that with such a system 
 of local taxes, where each political unit is fiscally inde- 
 1 o/. a/., p. 505. ^C?/.«V.,p. 132. 
 
294 JUSTICE IN TAXATION [630 
 
 pendent, there will be an end to the evil of political units 
 shifting their burdens upon each other by undervaluations. 
 
 The above outline of what is conceived to be a rational 
 system for the political distribution of taxes, it must be 
 admitted, is not wholly free from arbitrariness. For in spite 
 of the more or less clearly marked political divisions, the 
 parts of our federal system are so intimately connected, and 
 so closely interdependent, that the relationship of the citizen 
 to one of the units involves his relationship to each higher 
 and lower unit in the system. There is, nevertheless, a 
 difiference that is substantial enough for forming a legitimate 
 basis for a political division of taxes. If our division is in 
 contradiction with any of our previous principles, it is with 
 that principle which declares that ability is the only true 
 basis of taxation, for the division is apparently very largely 
 based upon the principle of benefits. As to local taxation, 
 it is admitted that there is some validity in the benefit prin- 
 ciple. But carefully examined it will be seen that the con- 
 tradiction is little more than an apparent one. 
 
 There can be no doubt but that it is the fundamental 
 thought in taxation that every individual should contribute 
 towards the support of the political units with which he 
 stands in some direct relation, and should contribute accord- 
 ing to his ability. That such a result would follow from 
 such a system of taxation as that outlined in the present 
 chapter, taken in connection with its political distribution, 
 we believe that a careful analysis of probable results would 
 make sufficiently clear. But even though it may not give 
 realization to theoretical principles in every particular, it 
 offers so many practical advantages — realizing uniformity 
 and equality, as well as having political, economic and fiscal 
 advantages — that it may well be considered as offering the 
 highest form of the practical ideal; at the same time that it 
 conforms substantially to the theoretical ideal. The effect 
 
631] PRACTICAL JUSTICE IN TAXATION 295 
 
 of such a system upon the ehmination of those personal and 
 political factors that are the source of so much inequality — 
 fraud, corruption, undervaluations, evasions, etc. — would go 
 far to promote the conditions of an ideal equality, the ends 
 of a complete justice. 
 
 Finally, there are hopeful signs that such a system is not 
 always to remain a mere fiscal ideal. The abuses and in- 
 equalities of present methods are becoming so flagrant that 
 political parties are being forced to take cognizance of them 
 and to consider remedies for the solution of the evil.' 
 normal schools in the United States and other countries. 
 
 The second group hold that the most effective results are 
 Nevertheless, the ideal is far from attainment. This is made 
 inevitable on account of the great number of our states, 
 their varied economic conditions, and the natural conserva- 
 tism of political parties. But until some such system as that 
 outlined in the present chapter is put into practice, we can 
 hope for only makeshift Teforms. With such a system once 
 in operation we shall, at least, have taken a long step toward 
 realizing the ideal ends of justice in taxation, and shall have 
 attained a close approximation to justice, which is all that 
 can be hoped for in human affairs. 
 
 ^ In the State campaign in Ohio, in the fall of 1901, Mr. Tom L. Johnson, in 
 behalf of the Democratic party, made the issue upon the equalization of taxes. 
 The present writer took occasion to write a letter for a Cleveland paper, briefly 
 advocating the system set forth in this chapter. In reply, letters were received 
 from the leader of the Republican party and from Mr. Johnson, while a Demo- 
 cratic candidate for the legislature made a public reply. In every case it was con- 
 tended that the system advocated in my letter was essentially the same as that for 
 which they stood committed. In the next legislature the Democratic party did 
 attempt to carry out some tax reforms along these lines, but their efforts were 
 negatived by the Republican majority. 
 
BIBLIOGi^APHY 
 
 Adams, II. C. Public Finance. New York, 1898. 
 
 Adams, H. C. Public Debts. New York, 1892. 
 
 Aristotle. Politics. 
 
 Aristotle. Nichomachean Ethics. 
 
 Baer, C. Z' Avere e V Impost a. Roma, 1872. 
 
 Bastable, C. F. Public Finance. London, 1895. 
 
 Bastiat, F. Ce qu' on voit et ce qu' on ne voit pas. Oeuvres. Paris, 1863, 
 
 Bastiat, F. Sophismes ilconomiques. Oeuvres, 4th ed. Paris, 1863. 
 
 Block, M. Les Progres de la Science iconomique. 2 vols. Paris, 1890. 
 
 Bluntschli, J. K. Theory of the State. Tr. London, 1895. 
 
 Bockh, A. The Public Economy 0/ Athens. Tr., 2 vols. Boston, 1857. 
 
 Burgess, W. Political Science and Constitutional Law. Boston and London, 
 
 1898. 
 Cherbuliez, A. E. Precis de la Science Aconomique. Paris, 1862. 
 Cohn, G. The Science of Finance. Tr. Chicago, 1895. 
 Cooley, T. Law of Taxation. 2d ed. Chicago, 1886. 
 
 Cossa, L. Primi Elementi di Scienza delle Finanzt. 4th ed. Milan, 1887. 
 Courcelle-Seneuil, J. G. Traite d' Aconomie Politique. 2 vols., 2d ed. Paris, 
 
 1867. 
 Coulanges, F. The Origin of Property in Land. Tr. London, 1891. 
 Davenant, C. Essay on the Ways and Means of Supplying the War. 1695. 
 Denis, H. Z' Impot. Bruxelles, 1889. 
 
 De Parieu, F. E. Traite des Ittip&ts. 4 vols., 2d ed. Paris, 1866-67. 
 Edgeworth, F. Y. " The Pure Theory of Taxation." Economic Journal. Vol. 7. 
 Ely, R. T. Taxation in American States and Cities. New York, 1888. 
 Fairbanks, A. Introduction to Sociology. New York, 1896. 
 Flora, F. Manuale di Scienza delle Finanze. Livorno, 1893. 
 Flora, F. " II Concetto della Economia Finanziaria." Rassegna di Scienti Sod' 
 
 alee Politiche. Aug., 1889. 
 Gamier, J. Traite des Finances. Paris, 1885. 
 George, H. Progress and Poverty. New York, 1879. 
 Giddings, F. 11. The Principles of Sociology. New York, 1896. 
 Giovanelli, G. Della Scienza Finanziaria, Roma, 1877. 
 Girardin, E. de. De P Impot. Paris, 1852. 
 Green, T. H. Prolegomena to Ethics, Oxford, 1884. 
 
 296 [632 
 
633] BIBLIOGRAPHY 297 
 
 Green, T. H. Political Obligations. London, 1895. 
 
 Grotius. De Jure Belli ac Pads. 1625. 
 
 Held, A. Die Einkommensteuer. Bonn, 1872. 
 
 Helferich, I. A. R. " Allgemeine Steuerlehre." In Schonberg's Handbuch der 
 
 Politischen Oekonomie. Tubingen, 1885. 
 Hobbes, T, The Leviathan. Molesworth's edition. London, 1841. 
 Hobbes, T. De Corpore Politico. 
 
 Hobbes, T. Philosophical Rudiments concerning Government and Society. 
 Hobson, J. Economics of Distribution. New York, 1900. 
 Hock, C. von. Die bffentlichen Abgaben und Schulden. Stuttgart, 1863. 
 Hume, D. Essay on Taxation. 
 
 Kaizl, T. Die Lehre von der Ueberwahung der Steuern. Leipzig, 1882. 
 Konig, G. Un Nouvel Impot sur le Revenu. 2d ed. Paris, 1887. 
 Leroy-Beaulieu, P. Traite de la Science des Pmances, 2 vols. Paris, 1892. 
 Lilly, W. S. First Principles in Politics. New York, 1899. 
 Locke, J. Civil Government. 
 Locke, J. Interest. Works, vol. iv, ed. 1824. , 
 Marshall, A. Principles of Political Economy. London, 1 89 1. 
 Marzano, F. Compendia di Scienza delle Finanze. Torino, 1887. 
 Mazzola, U. I Dati Scientifici delta Finanta Publico. Roma, 1890. 
 McCuUoch, J. R. Taxation and Funding. 2d ed. London, 1852. 
 McLane, W. M. " The Ethical ^asis of Taxation." Andover Review. Dec, 
 
 1892. 
 Menier, A. Z' Impot sur le Capital. Paris, 1874. 
 Meyer, R. Die Principien der gerechten Besteuerung. Berlin, 1884. 
 Mill, J. S. Political Economy. London, 1848. 
 Mill, J. S. Utilitarianism. London, 1862. 
 Mill, J. S. On Liberty. London, 1859. 
 Mirabeau, V. de R. Theorie de V Impot. Paris, 1761. 
 Mirabeau, H. G. " Sur 1' Egalite des Contributions." Speech in National 
 
 Assembly, Oct. 7, 1 789. 
 Mirabeau, H. G. Addresse aux Franfais sur la Contribution Patriotique. 1789. 
 Montesquieu, M . de S. Esprit des Lois. 1 748. 
 
 Murhard, K. Theorie und Politik der Besteuerung. Gottingen, 1834. 
 Neumann, F. J. Progressive Einkommensteuer. Leipzig, 1874. 
 Neumann, F. J. Die Steuern und das bffentliche Inter esse. Leipzig, 1887. 
 Nevvcomb, S. Principles of Political Economy. New York, 1886. 
 Pantaleoni, M. Teoria delta Pressione Tributario. Roma, 1882. 
 Pareto, V. " Parliamentary Government in Italy." Political Science Quarterly. 
 
 Vol. viii, 1893. 
 Perry, A. L. Political Economy. New York, 1 874. 
 Pescatore, M. La Logica delle Imposte. Torino, 1867. 
 Petty, Sir Wm. A Treatise of Taxes and Contributions. 1667. 
 Plehn, C. C. Public Finance. New York, 1896. 
 
298 BIBLIOGRAPHY [634 
 
 Plehn, C. C. "The General Property Tax in California" (Am, Econ. Assoc, 
 
 Economic Studies, Vol, II, No, 3). 
 Plato. Republic. 
 Post, L. F, The Single Tax. 
 
 Proudhon, P. J. Theorie de V ImpSt, Oeuvres, v. 15. Bruxelles, 1845, 
 Proudhon, P. J. Les Contradictions Economiques. 1845, 
 Quesnay, F. Maximes Generales. Paris, 1758. 
 Quesnay, F. Dest>otisme de la Chine. Paris, 1767, 
 Quesnay, F. Le Revenu Piiblique, Oeuvres. Francfort S. M., 1888. 
 Rameri, L. " Per la Proportionalita delle Imposte," Rassegna di Scienzi Sociali 
 
 e Politiche, Oct., 1891. 
 Ricardo, D, Works. McCuUoch's Edition, London, 1888, 
 Ricca-Salerno, J, Mantiale di Scienza delle Finanze. Firenze, 1888, 
 Ritchie, D. G, Principles of State Interference. London, 1897, 
 Roscher, Wm, System der Finanzwissenschaft. Stuttgart, 1894. 
 Ross, E. A, " A New Canon of Taxation." Political Science Quarterly, Vol. 7, 
 Rousseau, J. J. Contrat Social. 1762, 
 Royer, C, A, Theorie de /' Impbl. 2 vols, Paris, 1 864, 
 Say, J, B. Political Economy. American Edition. Philadelphia, 1836, 
 Say, L. La Question des Impots. 2 vols, 1 886, 
 
 Sax, E. Grundlegung der theoretischen Staatswirthschaft. Wien, 1887, 
 Sax, E. " Die Progressivsteuer," Zeitschrift filr Volkswirthsckaft, Socialpolitik 
 
 und Verwaltung. Erster Band: i Heft., 1892. 
 Schaffle, A, E, F. Grundsatze der Steuerpolitik. Tiibingen, 1880. 
 Schaffle, A. E. F, " Mensch und Gut," Deutsche Vierteljahrschrift, 1 861, 4 Heft. 
 Seligman, E, R. A, Essays in Taxation. New York, 1895, 
 Seligman, E, R. A, Progressive Taxation. Baltimore, 1894, 
 Seligman, E, R, A, Shifting and Incidence of Taxation. Baltimore, 1892, 
 Seligman, E, R, A, " Social Elements in the Theory of Value." Quarterly 
 
 jfournal of Economics, vol. xv. 
 Senior, N. W. Political Economy. 
 
 Shearman, T. G. Natural Taxation. New York, 1898. 
 Sidgwick, H, Principles of Political Economy. London, 1887, 
 Sidgwick, H. History of Ethics. London, 1886, 
 
 Sismondi, S, de. Nouveaux Principes d^ Aconomie Politique. Paris, 1819, 
 Single Tax Discussion. Social Science Association, Saratoga, 1894. 
 Smith, A, Wealth of Nations (Rogers' Edition), 2 vols. 1880. 
 Smith, E, P, Political Economy. 
 
 Spencer, H, Principles of Sociology. Vol. I. New York, 1884. 
 Spencer, H, Social Statics (Abridged and Revised), New York, 1897. 
 Spencer, H. Data of Ethics. New York, 1884. 
 Spencer, H. Justice. New York, 1895. 
 Taylor, F. M. Right oj the State to Be, 
 Thiers, A, De la Proprieti. Paris, 1848, 
 
635] 
 
 BIBLIOGRAPHY 299 
 
 Thiers, A. Impai sur le Luxe et le Revenu. 
 
 Tucker, B.R. Instead of a Book. 2d ed. New York, 1897. 
 
 Turgot, A. R. J. Travaux Divers concernant les Impositions. Works, vol. iv. 
 
 Paris, 1808. 
 Umpfenbach, K. Lehrbuch der Finanzwissenschaft. 2d ed. Stuttgart, 1887. 
 Vauban, M. de. Le Dime Royal. 1707. 
 
 Vocke, W. Die Abgaben, Auflagen und die Steuern. Stuttgart, 1887. 
 Volta.'R. dalla. " L' Imposta Progressiva dal Punti di Vista Teorica." Ras- 
 
 segna di Scienzi Sociali e Politiche. Oct. and Nov., 1893. 
 Wagner, A. Finanzwissenschaft. 3 vols. Leipzig, 1 883-1 898. 
 Walker, F. A. Political Economy. New York, 1888. 
 
 Walker, F. A. " The Bases of Taxation." Political Science Quarterly, vol. 3. 
 Walras, L. Theorie de V Impot. Paris, 1861. 
 West, M. The Inheritance Tax. New York, 1893. 
 Wieser, F. von. Natural Value. Tr. London, 1893. 
 Zorh, A. La Scienza dei Tributi. Bologna, 1889. 
 
 REPORTS. 
 
 Report of English Income Tax Commission. 1852. 
 
 Report of Special Committee on Taxation of Boston Executive Business Asso- 
 ciation. 1889. 
 Report of Tax Commission of Pennsylvania. 1890. 
 Report of Tax Commission of Ohio. 1893. 
 Report of Tax Commissio7t of Massachtisetts. 1897. 
 Report of Revenue Commission of Colorado. 1901. 
 Report of State Tax Commission of Michigan. 1901. 
 Report of Tax Comtnission of Wisconsin. 1901. 
 
 ERRATA. 
 Page 97, Note i, for 73 read 86. Note 2, for 75 read 
 Page 104, Note 3, for 88 read loi. 
 Page 134, Note i, for 43 read 56. 
 Page 140, Note 2, for 92 read 104. 
 Page 141, Note 2, for 53 read 66, note 2. 
 Page 160, Note i, for 63 read 77. 
 Page 161, Note i, for 109 read 121. 
 Page 174, Note I, for 143 read 155. 
 
VITA 
 
 The writer of the following monograph received his pre- 
 paratory and collegiate education at Antioch College, from 
 which institution he was graduated in 1879. From the same 
 college he received the degree A. M. in 1884. In 1885 he 
 went to the University of Michigan, taking two years of post- 
 graduate work at that institution. The major work consisted 
 of Philosophy and Ethics, and was taken under Professors 
 Morris and Dewey. The two minors were Economics and 
 Pedagogy, the former being under Professor Adams and the 
 latter under Professor Payne, 
 
 In the fall of 1890 the writer entered the School of Political 
 Science in Columbia University and pursued two years of post- 
 graduate work in that department of the University. The 
 major study at Columbia was Finance, and the two minors 
 Social Science and Administrative Law. The major work was 
 under the direction of Professor Seligman, the minors under 
 the direction of Professors Mayo-Smith, Giddings, and 
 Goodnow. 
 
 During the second year at Columbia the writer held. a 
 Seligman Scholarship in Economics, and at the end of the 
 second year was given a University Fellowship in Finance for 
 the year 1892-3. In the fall of 1892 he received the appoint- 
 ment of Assistant in Economics and thereupon resigned the 
 University Fellowship. The position of Assistant in Eco- 
 nomics was held for two years. In 1894 the writer went to 
 Western Reserve University, Cleveland, Ohio, as Associate 
 Professor of Political and Social Science. In 1902 he was 
 elected as acting executive of Antioch College, Yellow Springs, 
 
 301 
 
302 VITA 
 
 Ohio, under the title of Dean of Antioch College, having also 
 the Professorship of Philosophy and of Political and Social 
 Science. 
 
 The previous publications of the author of this Monograph 
 are the following : 
 
 "The Significance of the Individual," published in Seed Time, 
 Oct., 1893 — a publication of the London Fabian Society. 
 
 Two articles on "Tax Reform " pubhshed in the Cleveland Plain 
 Dealer, Oct., 1901. 
 
 Reviews in the Political Science Quarterly, viz. : 
 
 Vol. VI, No. 2 : 
 
 Crime and Its Causes, by William D. Morrison ; The Elmira Re- 
 formatory, by Alexander Winter; The Death Penalty, by 
 Andrew J. Palm. 
 
 Vol. VII, No. 2 : 
 
 Trade Unionism, New and Old, by George Howells ; Problems of 
 Poverty, by John Hobson. 
 
 Vol. VIII, No. 4 : 
 
 La Riduzione delle Ore di Lavoro e i suoi Effetti Economici, by 
 Riccardo dalla Volta ; La Legislation Internationale du 
 Travail, by Paul Boilley ; Guide Pratique pour I'Application de 
 la Participation aux Benefices, by Charles Robert. 
 
 Vol. IX, No. I : 
 
 Teoria della Trasformazione dei Capitali, by Camillo Supino. 
 
 Vol. XIII, No. 2 : 
 
 La Questione dei Negri, by Gennaro Mondaini. 
 
 Vol. XIV, No. 2 : 
 
 Saggi di Economia e Finanze, by A. de Viti de Marco. 
 
 Vol. XV, No. 4 : 
 
 La Teoria del Salario, by G. Ricca-Salerno. 
 
^ 
 
 
 J 
 
/> 
 
 Lij*.^! 
 
 UNIVERSITY OF CALIFORNIA LIBRARY 
 This book is DUE on the last date stamped below. 
 
 Fine schedule: 25 cents on first day overdue 
 
 50 cents on fourth day overdue 
 One dollar on seventh day overdue. 
 
 JoH 
 
 7 H'^t 
 
 LD 21-100m-12,'46(A2012sl6)4120 
 
YC ?3'^F^4 
 
 / 
 
 HJS305 
 
 We-s'toK