GIFT OF THE AUTHOR i Okaft attit (grab A PRESS OF THE INDUSTRIAL PRINTING COMPANY SAN JOSE, CALIFORNIA N 3.4-1 FOREWORD A recent judgment by the Federal Court compelling the restoration of 2,300,000 acres of agricultural lands unlawfully claimed and withheld from the people, to- gether with an undecided suit now pending for $300,- 000,000 of oil lands held in violation of law, has sug- gested the necessity of furnishing to the public such facts as will enable the intelligent public to more heartily co-operate with the Government in its struggle with this gigantic conspiracy to defraud and degrade the indus- trial and wealth producing classes of this Republic; hence the settled conviction that publicity is the most ef- fective weapon which can be employed against an es- tablished and organized public wrong prompts the sub- mission of the following statement of facts which are of vital importance to the industrial and producing classes, facts which either have been forgotten or are being con- cealed and suppressed by the subsidized press of the present day. The facts submitted will disclose not only the un- lawful acquisition of the public lands, but will reveal the methods by which the savings of the people are pass- ing out of their possession into the control of the so- called capitalists, which evidences an organized con- spiracy of those controlling the finances of the country to also control the proceeds of those who produce the wealth. The persistent efforts of the railroad at the present time in demanding further investments from "the man with savings" and the demand for increased rates for transportation upon its inflated valuations with a de- crease in its rate for taxation and a curtailing of its lia- bility to the public, invites an interested public to inves- 331847 tigate both the methods and the means by which it has secured its assumed holdings as well as its domination over the government which it has so violently assailed for not complying with its demands. In this issue which is now forced upon the public by the corporations against the people the suppression of facts is their strong defense, while publicity is the hope of the people. Since the investigations of the Government officials alone these lines have in the past demonstrated the fu- tility of pursuing this elusive corporation along the tor- tuous trails blazed by its expert bookkeepers, which too often ended in a jungle of destroyed or mutilated rec- ords a practical burning of the bridges behind a routed army to avoid such experiences these statements will record the simple facts as obtained from the records of this company's administration, and with these suppressed facts the public may determine for itself regarding its rights and interests, leaving the burden of proving right doing and honest administration upon this corporation which has all the evidences under its control (if not destroyed by themselves) which would exhonorate itself and restore confidence to the patronizing public, if de- serving it. This is a matter of vital importance to every patron of transportation, to every taxpayer, and to every person who travels or ships' over the lines of this public utility ; and to all who are interested in the suppression of a gi- gantic conspiracy to defraud the Government and de- bauch the public, to all who desire and demand the faithful administration of the law. To (the interest of those classes, these pages are re- spectfully dedicated, with the reiterated statement that publicity of the facts is the most effective agency for op- posing the perpetuation of a public wrong. C. D. HARVEY. A PUBLIC UTILITIES IN THE GRASP OF THE SOUTHERN PACIFIC COMPANY A Public Utility is a public service corporation organized for the benefit of Community Interest instead of Individual Interests. The Community Interest is paramount to the interest of the individual in a Public Utility Corporation, and this is the distinguishing feat- ure between a Public Utility and a Private Cor- poration. Public Service is the motive as well as the jus- tification for using public lands and Government subsidies in aid of its construction, which could not be granted to aid private enterprise. They may, however, be rightfully bestowed, where the public is the beneficiary; hence where public en- terprises are created by the aid of Government subsidies, the public has a vested right therein which the incorporators must respect in the ad- ministration of their affairs. It is a public trust, not a private individual matter; the property is quasi-public property, and its officials are acting as quasi-public officers in the administration of the same ; and any diversion of its use from com- munity interests to personal gain especially when personal gains are acquired at the expense of the public should be regarded as a crime more flagrant than that of the highwayman. Disloyalty to a public trust by one entrusted to administer the same, is akin to treason, and might well be classed as Petit Treason. Under the garb of a public utility the most co- lossal frauds have been practised, and some of the most atrocious crimes committed against en- tire communities communities for whose ben- efit these same public utilities were created in which graft and grab have run riot under the cloak of public utility. Up to 1912 over two hundred and eighty-eight million acres of public lands had been granted to alleged public utilities, amounting to over six- ty per cent of all the cultivated lands in the Unit- ed States at that date. A practical illustration of the methods em- ployed and the effect upon the communities where these alleged public utilties operated, may be found in the history of one of the most con- spicuous of our so-called public utilities; its "in- sidious influence" both at the Capitol, where these public utilities are created and subsidized, and in the community wherein these utilities are operated. By an Act of Congress passed and approved July'l, 1862, aid was given for the construction of a railroad and telegraph line from the Mis- souri River to the Pacific Coast a trans-contin- ental line projected by four business men in Sac- ramento, California. By the terms of this grant the incorporators were to receive, as Government aid, thirty-two hundred acres of land per mile, together with a right of way two hundred feet in width across the continent; also Government bonds to the amount of sixteen thousand dollars per mile, and in the mountainous district this subsidy was in- creased to thirty-two thousand dollars for one hundred and fifty miles, and to forty-eight thous- and dollars per mile for another one hundred and fifty miles. In addition to these subsidies, the company was authorized to issue stock to the amount of one hundred million dollars, to be used in the construction of the road. In addition to the above the company was authorized to take the timber, stone and building material from the adjoining land for the construction of the road. All mineral lands were exempted from passing under this grant, and all lands which were not sold within three years after the completion of the road were subject to pre-emption and settle- ment by actual settlers, upon payment of the Gov- ernment price of $1.25 per acre. The Act provided that the railroad company should file its assent to the conditions of the Act, within one year from the date of its approval, and to build forty consecutive miles of road within two years, and forty miles each year thereafter until completed; the entire Union Pacific line to be completed by July 1, 1874. These Government bonds were to be issued to the company according to the progress in the construction of the road. Whenever forty con- secutive miles were completed and equipped the bonds were issued, and the lands were patented to the company; the issuing of these bonds con- stituted, ipso facto, a first lien on the whole line of the road, telegraph, fixtures, rolling stock and property of every kind and description; and a failure to comply with all the conditions of the Act incurred a forfeiture of all the company's property, as well as franchises, and provided that the Government should take possession of the road and all the property of the company. Another provision of said Act required the 5 railroad company, on the completion of the road, to set aside five per cent of the gross earnings, to be applied in payment of the interest on the Gov- ernment bonds given in aid of the construction of the road, and the excess, if any, to be applied in liquidation of said bonds. This interest ac- count alone amounted to over $3,000,000 a year, which was being paid by the Government. It was further provided that upon the filing of the map designating the location of the road, all lands within the limits of this grant, for ten miles either side of the railroad, were to be withdrawn from pre-emption or homestead or settlement un- til the selections were made by the railroad com- pany. The company having by this provision secured the exclusive control of these lands for purposes of settlement, until such time as they made their selections, by delaying to make such selections, these lands were held from taxation for years. Although this Act was approved by Congress July 1, 1862, nothing was done under its provis- ion toward the construction of the road, so far as the records show. Their construction work was directed more to the Congressional work of the next Congress than to the building of the road under the Act of 1862. At the next Congress of 1864, over a year after the time limited for the company to file its assent to the provisions of the Act of 1862, the activities of these incorporators at Washington indicated that more energy and effort were being spent for controlling Congress than for con- structing the Pacific railroad, as the following amendments to the original Act of 1862 would indicate. First Amendment To extend the time for filing their assent and map locating the route of the road. Second Amendment Increasing the land grant from 3,200 acres to 6,400 acres per mile. Third Amendment Extending the area from which the railroad company could make its selection of land, from thirty to sixty miles in width along the road as located by the map (to be filed thereafter). Fourth Amendment The bond issue of sixteen thousand dollars per mile was increased to thirty-two thousand dol- lars per mile by authorizing the company to is- sue bonds equal in amount to the Government is- sue, which were to be a first lien upon the prop- erty of the company in the place of the first Hen held by the Government under the Act of 1862, thereby making the Government lien second to the lien of the company's bonds as expressed in the Act of 1862, it "shall be subordinate to that of the bonds of any or either of said companies/' The "insidious influences" complained of by the present Administration evidently had a firm grip at the Capitol as early as 1864, and the pro- moters of subsidized schemes were at that date past masters in the art of manipulating legisla- tion favoring private interests, and one may reasonably ask, in view of such a record, for whom do our legislators legislate, the people or private interests? Fifth Amendment In addition to increasing the issue of bonds from $16,000 to $32,000 per mile, they were to be issued to the company on the completion of twenty miles, instead of forty miles, as provided under the Act of 1862, and in the mountainous district where thirty-two and forty-eight thou- sand dollars per mile were to be released upon the construction and equipment of twenty-five 8 miles of road, the release of two-thirds of the bonds up to the cost of construction was to be made to the railroad company upon a filing of a certificate by the chief engineer of the railroad company, that a specific number of miles was ready for the superstructure. This Amendment practically places the issuing of these bonds with the railroad company and its employees. Sixth Amendment Called for a reduction of the number ot miks of road to be constructed in order to hold the franchise; on the Central Pacific it was reduced from forty to twenty-five miles per annum, and every amendment to the original Act of 1862, in like manner was made to favor the railroad com- pany. Seventh Amendment Under the Act of 1862 all compensation for services due from the United States, together with the five per cent on the gross earnings of the road, were to be applied in payment of the inter- est on these Government bonds, as well as on the principal; this was changed, reducing the pay- ment to one-half the amount due for Government service rendered by the railroad company. The above with other changes made by the Congress of 1864 left very little of the original Act relating to the construction and financial aid in its original form. It practically created a new franchise with new conditions increasing the sub- sidies in lands and bonds 100 per cent and de- creasing the obligations of the incorporators in the same proportion, and since all this was ac- quired at the expense of the public, it might in- dicate that expert and unscrupulous politicians and financiers dominated legislation at the national Capitol at this period, and these indica- tions crystalize into conviction when, in addition to the increase of lands and bonds 100 per cent, the railroad company is authorized to issue addi- tional bonds, equal in amount to the Government bonds subordinate to the bonds to be issued by the company which had already secured subsidies more than sufficient to construct the road, as a sequence of this transaction the Government was compelled to pay upon these bonds issued to the railroad company in interest and principal over $188,000,000, by reason of the company refusing and failing to make payment according to the con- ditions contained in the Act under which they re- ceived these bonds. By this failure the company forfeited its franchise and all its property as well, had the Government exercised its rights. 19 Instead of enforcing a merited forfeiture of the franchise on account of the two years delay in the construction of the road, a reward was giv- en by doubling the grant as well as the bond is- sue, and made the lien of the Government sub- ordinate to the lien of the incorporators, at the same time curtailing the obligations of the pro- moters and lessening their responsibility in the same proportion. CONSTRUCTION In the construction of the road a new phase is presented to the incorporators and builders of the road, since two things are to be considered in its construction. Two opposing forces were now working, apparently in unison, but, in fact, dia- metrically opposed to each other a sort of Dr. Jekyll and Mr. Hyde combination. In the work- ing out of this combination, the respectable Dr. Jekyll, as a quasi-public official of a subsidized public utility, contracts with himself, as an offic- ial, and owner of stock in an improvement com- pany, for the labor and supplies necessary for the construction and equipment of the public utility, in which he is a quasi-public official to protect the interests of the public. By assuming the name of an improvement 11 company they contract with themselves for all supplies and materials, all labor and equipments for the construction and completion of this pub- lic utility, at whatever prices or profits they may determine, without any intermeddling by com- petitive bidders. Having created such conditions, one of the two interests must suffer, since it is impossible to give one's best service to two such masters or causes at the same time without doing an injustice to one or the other, and whatever advantage may be acquired by either is attended by a corresponding disadvantage to the other, and a violation of a trust. In the present case a transcontinental railroad, with certain specified branches and aided in its construction by Government subsidies, was to be built by these incorporators. The Government aids amounted approximately to the sum of $308,358,355, to which was subsequently added the sum of $188,000,000, making a total of $496,- 358,355 for the construction of a public utility which according to the report of a Congression- al Committee, should have been constructed for $95,955,347. This was the problem to be solved by these incorporators, these contractors, these quasi-public officials, these owners and officials 12 of intangible improvement companies, all com- bined in ONE GIGANTIC PLOT to beat the Govern- ment and plunder the public. This subsequent advancement of $188,000,000 by the Government to pay the defaulted interest v:as necessitated by the subordination of the Government lien to fte lien of ^the company's bonds subsequently issued. By this substitution it h^came necessary for the Government to pay the defaulted interest upon the bonds of the company in order to protect its interests from fore-Insure, which would follow the non-pay- ment of interest on either the Government or company's bonds. These non-competitive contracts w-hlth were made by themselves, with themselves, for the construction and equipment of the road, and for all supplies while operating the same, were a conspicuous feature in the solving of this prob- lem most embarrassing for a conscientious bus- iness man. PUBLIC UTILITY OR PUBLIC UTILIZED WHICH ? The construction of the road having been com- pleted, a new chapter is opened in the operation of this public utility in which the same policy of greed and graft is manifested. We now have 13 for review a public utility which by the adoption of honest methods according to the Report of a Congressional Committee could have been built for $95,955,347, for which the Govern- ment extend its aid to the amount of $496,358,- 355. These amounts represent the comparative in- terests of the public in this public utility in 1878, and should have stamped the public utility char- acteristic upon both the railroad and its services to the public. Under the policy adopted by the officials con- trolling this intended public utility, it has been made the most effective organization for creat- ing monopolies and trusts, for gathering colossal and unearned fortunes, for controlling the indus- trial classes and the profits of the producing classes, for changing a government of the people into an oligarchy where the multimillionaires buy and sell legislation as merchandise; it has destroved the freedom of the industries, and sub- jected the producing classes to the domination of a money aristocracy. In the control of these public utilities the same policy of greed, graft and grab which was man- ifested In the manipulation of Congress and the construction of the road, was equally apparent in 14 the operating of this public utility. Its charges for services were exorbitant; its rates on the basis of "all the traffic will bear" ; its rules were arbitrary and its courtesy to the public was lack- ing; every device for extorting money from the patronizing public was employed, from the high- est official to the baggage man demanding an extra dollar for roping the trunk which was passed on all other lines. A comparison of the rates of the present time with the rates charged before competition and Government supervision, will demonstrate the change wrought by Government control and competition. In 1875 the rate for a lady and six-year-old son with an ordinary trunk of clothing from Chi- cago to San Francisco was as follows : Ticket for adult _ $117.00 Half ticket for child 89.00 Ordinary trunk of clothing 20.00 Roping trunk (already equipped with heavy strap) 1.00 Sleeping car section ..... 20.00 $247.00 15 Under Government Control and Competition Ticket for adult $72.52 Half ticket - 38.75 Roping trunk with heavy straps 00.00 Excess baggage, about 2.50 Sleeping car section 7.50 $125.25 This difference as expressed by these rates, in- dicates the degree of improvement realized, both in money and courtesy, under Government con- trol and competition, against which railroad of- ficials and investors in railroad securities com- plain so vigorously. The stockholding class in the United States now numbers about six hun- dred and twenty thousand. REBATES AND THEIR RESULTS The system of rebates as adopted by these of- ficials destroys all legitimate competition by giv- ing to a favored few the control of the business affected by transportation; by this system of re- bates or special rates the masses of the producing classes were compelled to share the profits of their labor with a non-producing class to whom rebates or special rates were granted. In this 16 manner the great body of the producing class were denied the equal privilege of doing their own business in securing a livelihood. This rebate system as regulated by these of- ficials was a cunning scheme for accomplishing a double purpose first, to secure the entire pat- ronage of its subject; second, to effect the abso- lute subjugation of its patrons, who were re- quired to sign an "iron-clad contract" binding themselves to make all shipments by and through this company alone; this contract was a sugar- coated bribe to a shipper to sign away his vested business right of shipping as a freeman, there- by subjecting himself to the demands of this transportation company as completely as the serf of the feudal days when, on his bended knees, un- girt, uncovered, and holding up his hands to- gether between those of his feudal lord who sat before him, did then and there profess "that he did become his man from that day forth." Under this system the shipper abandoned all shipping rights, and at the same time pledged his moral support in opposing any competition which might give relief to a struggling class of industrial workers from the extortionate de- mands made upon them by this company to whom they are pledged and bound. 17 By such methods, not only individuals in their private capacity but also as members of public associations were seduced and controlled. Mem- bers of boards of trade, chambers of commerce and various public associations were used as pawns to create favorable public sentiment when- ever and wherever transportation interests of their masters were threatened by legitimate com- petition. The numberless petitions sent to Con- gress from these bodies, demanding free passage through the Panama Canal for the Pacific Mail Steamship Company's vessels, was an echo from the Southern Pacific Company. HISTORY OF THE PACIFIC MAIL STEAMSHIP COMPANY The Pacific Coast trade was absolutely dom- inated by the Southern -Pacific Company, under the alias of the Pacific Mail Steamship Company, and for years exacted a tribute of $75,000 a month from the connecting Eastern railroad lines which were interested in the transportation of its trans- continental freight. The purpose of this steam- ship line in running its boats at an actual loss during this period was to control and destroy water competition in order to maintain the ex- tortionate transcontinental rates charged by the 18 railroad; water rates were about one-half the rates charged by the railroad company. Among the contributors to this fund, for re- funding the company for the loss incurred in maintaining the service of the Pacific Mail Steamship Company, $4,000,000 was given by the officials of that road and paid from the earn- ings of the Union Pacific, to themselves as own- ers and officials of the Pacific Mail Steamship Company, in its efforts to maintain its extortion- ate rates over this public utility railroad, of which the Union Pacific constituted an import- ant part. A COMPETITOR IN WATER TRANSPORTATION The expansion of the Pacific Coast trade later brought to this coast an Eastern firm of capital- ists with sufficient capital to establish a rival line from New York to San Francisco, by using the Government railroad across the Isthmus of Pan- ama, thereby establishing a water transporta- tion line between the coast cities of the Atlantic and the Pacific. As this enterprise was being completed, the officials of the competing line were notified that the Government railroad re- fused to receive the freight of the competing line for transportation across the Isthmus, alleging 19 as a reason for its refusal that the Pacific Mail Steamship Company had previously contracted with the Government officials for the transporta- tion of its freight; therefore this Government railroad would be unable to handle the freight of the competing line. In view of the fact that this branch of the Pa- cific Mail Steamship line was running its boats between New York and New Orleans as a part of the Southern Pacific's transcontinental Sun- set Route between San Francisco and New York, this closing of the Government railroad to this competing line of transportation indicates that strong "insidious influences" were at that time prevailing at the seat of government. Thwarted in their effort to establish a through line of transportation by the use of the Govern- ment railroad across the Isthmus, in connection with their steamships, the New York capitalists arranged with the Mexican government to con- struct the Tehauntepec railroad across Mexican territory to carry their freight from ocean to ocean ; hence to Eastern capital and the Mexican government is due the credit of establishing wat- er competition between the Pacific Coast and the East, which the Southern Pacific Company had obstructed for so many years, while controlling 20 and receiving the revenues of this public utility which was built with the money of the public. In reviewing the history of the Pacific Mail Steamship Company and the selfish service it rendered the Pacific Coast, it is amazing to ob- serve the blind devotion of these rebate takers, merchants, shippers and various trade organiza- tions, to the call of the Southern Pacific Com- pany when its interests are threatened. This was evidenced by the numberless petitions Sent to Congress by the various boards of trade, cham- bers of commerce, merchants' exchange and shipping associations, demanding of the Gov- ernment a free passage through the Panama Ca- nal the people's highway from ocean to ocean of those very vessels which for years were em- ployed to crush out legitimate competition so as to burden the public with extortionate railroad rates; to give to these vessels a free passage through this territory which in the past they have so effectively closed to all competing lines; free passage to this exploiting, subsidized company in order to compete with unsubsidized foreign vessels whose service is beneficial to the general public. To crush out competition by the aid OA unequal privileges has ever been the policy of this com- 21 pany, and th~/ re still mustering all the agen- cies they can control to accomplish this at the oresent time. It should be a humiliation to our civic pride to >erve how commercial bodies and prominent Business men are ready to give such blind de- votion and obedience to such a cause; it is an alarming symptom of degeneracy and disloyalty both to the Government and to humanity. "It is .. tying too dear a price for our (Southern Pa- mc, public utility) whistle." It is an occasion ror congratulation to both the shippers and pro- ducers of the Pacific Coast, that the grip of this Governnment-aided monopoly upon the Panama Railroad, in aid of its extortionate rates, has mailed to control the Panama Canal under the present Administration. Aspersion, obstruction and litigation were the greetings extended to every transcontinental line promised relief from these exactions: ter- sites were preoccupied, water fronts were obbled, mountain passes blockaded, and every neans known to law, bribery or trickery was em- ioyed to crush out legitimate competition, until me patience of the people was exhausted and the Government was compelled to exercise its super- vising control for the protection and preservation 22 of the rights of the people. This struggle is still on; the activities of the Southern Pacific Com- pany are being conducted on the same old lines for perpetuating its power through the Panama Canal in the future as it dominated the govern- ment railroad in the past, in order to maintain its grip upon the industries and the industrial workers of the Coast; its policy of greed, graft and grab is unchanged. INVESTMENTS In reply to the unjust charges recently pub- lished against "the man with savings," for his unwillingness to further invest his savings in the stocks and bonds of public utilities, the record of the investments heretofore made, and the results therefrom, furnish good reason for this unwill- ingness, as the public can judge. In 1862 Congress passed an Act granting about $200,000,000 dollars in aid of the con- struction of this transcontinental railroad from the Missouri River to the Pacific Coast, which, under the honest methods (according to a report of a Congressional Committee) could have been built for less than one-half the amount appro- priated. By the provisions of this Act an accep- tance of its terms was to be filed within one year, 23 and not less than forty miles of road be completed within two years, and forty miles each succeed- ing year thereafter, until the completion of the road. Two years later, in 1864, the incorporators having failed to file its acceptance, or to perform any of the requirements of said Act, applied for and obtained from the Congress of 1864 addi- tional appropriations substituting the lien of the bonds to be issued by the railroad company, for the lien of the Government bonds author- ized by the Act of 1862; it also limited the obligations and liabilities of the company as spec- ified in the Act of 1862. The total amount of the subsidies granted under the Acts of 1862 and 1864 aggregated $322,338,295 as working cap- ital, which, after the construction of this $95,- 955,347 public utility, should "under honest methods" have left a balance in the hands of the company of $226,882,921. From the completion of the road up to 1887 the earnings of the road amounted to the sum of $611,479,443.90, which amount, after paying op- erating expenses, taxes, rentals etc., netted the company the sum of $278,023,357.63. In addi- tion to this should be included the sum of $25,- 000,000 of unreported earnings which was set 24 aside as a special fund for pools, rebates, subsi- dies and the like. Up to this time, the Government was unable to collect the five per cent on the gross earnings in payment of the interest on the bonds given in aid of the construction of the road, and in order to protect its interests from foreclosure the Gov- ernment was compelled to advance $188,000,000 in payment of the interest defaulted on these bonds by the company. The total amount re- ported as paid by the company during eighteen years of accumulation was only $30,955,039.61. In 1878 Congress appointed a Committee to investigate the affairs of the Pacific Railroads and directed the Attorney General to institute proceedings to compel the company to a perform- ance of 'the conditions of the Act granting the subsidies and franchise; nothing resulted from this action as shown by the records of the Gov- ernment. Again, in 1887 another Committee was ap- pointed and another order was passed again di- recting the Attorney General to institute pro- ceedings to enforce a compliance with the pro- visions of said Act. At this time the railroad company held control 25 of the various funds as follows : Unexpended Government aids $226,382,921 Net income from earnings of the road $278,023,357.63 Earnings not reported to Gov't 25,866,235.72 Advancements on defaulted interest 188,600,000.00 Total $718,272,514 Credit this amount by 18 years accumulation $ 30,955,039.61 Total amount in hands of company 1887 $687,317,475 From 1887 until 1899 the railroad company continued to hold its grip upon the road, the rev- enues and the regions through which it operated, when Congress made its final attempt in 1899 to enforce a settlement, since some of the bonds had become due and others were about to fall due. Another Committee was appointed with power to settle with the railroad company. Eleven and one-half years had now elapsed since the last Committee had made its report, during which time the railroad company had re- ceived about $175,000,000 gross income from the 26 road, the net earnings from which increased this balance of 1887 to approximately the sum of $751,521,275.35. In February, 1899, an agreement was entered into between this last named committee and the railroad company for settlement of the Govern- ment claims. In this settlement the Government was required to take the promissory notes of the railroad company, in lieu of moneys they had re- ceived and retained from the earnings of the road; the payments were to be made in install- ments extending over a period of ten years with interest at the rate of three per cent per annum, where the Government had for nearly thirty years paid six per cent for the company when it defaulted its payments. This settlement was influenced largely by the unfavorable conditions which were created prior to this settlement. CONDITIONS AFFECTING THIS SETTLEMENT In justice to those representatives of the Gov- ernment in this transaction no reflection upon their ability or loyalty to the Government is im- puted, since conditions created before their ap- poitment necessarily influenced their action. 27 During the period these promoters were operat- ing this transcontinental line and receiving its revenues they were also actively engaged in se- curing other subsidies for the building of other roads which would give them another line of transportation from the Pacific to the Atlantic Coast. From Portland, via. San Francisco and New Orleans, to New York, with hundreds of miles of branch roads extending from the main line as feeders, thereby holding the Pacific Coast and all its industries jn its Strangling grasp ; meanwhile the old road and its equipments were allowed to deteriorate to such an extent as to necessitate the expenditure of large sums of money to successfully compete with this new trans-continental line now equipped and owned by themselves, as a competing line in the event of the Government taking over the old line in set- tlement of its claim upon the road; the motive for the building of this competing line is indicat- ed in an an uncontradicted public statement, at- tributed tq one of the principals in this group of four, "That the Government would get little ex- cept two streaks of rust, running across the con- tinent, in case it should take the road away from them." They now owned a competing line by rail to New Orleans and a steamer line from that point to New York, hence they could ship on their 28 own lines through ,to the Atlantic Coast and Eastern cities. This statement indicates both the condition of the road as well as the adverse conditions under which the representatives of the Government labored at the time of this se*- tlement. CAPITALIZATION A summary of the cost and capitalization " this transcontinental road discloses another in- portant source of income which is not enumera? ed in the above mentioned. amounts, and whicfe is also controlled by the maniuplators of this pub- lic utility. By this issue and sale of the stocks and bonds of this railroad the sum of approximately $981 571,915 of the people's savings has passed from the hands of the people into the control of these railroad officials; it was an exchange of $981,- 571,915 of the savings of the people for stock c and bonds of . a railroad which, under honest methods, could have been constructed for one- eighth that amount paid by the public for thes* ficticious securities. A brief review of the issuing of these stoclc and bonds by these officials will illustrate both the methods employed, and the amount secured under this system. 29 Stock issued in its construction $112.626,200 Stock issued since 1911 293,888,400 Bonds issued in construction 143,748,572 issued since its construc- tion . . 245,676,155 Total issue of bonds and stock $682,811,289 The actual cost of construction as reported by the Congression- al Committee of 1887 $ 95,955,347 The amount of bonds and stock issued in its construction was $256,366,732. A summary of these amounts which have passed inito the con- trol of the officials of this public utility after pay- ing for the construction of the road, all operating expenses, taxes, rebates and rentals, would show approximately the following: Unused Government aids $ 226,382,921 Net income from roads 425,971,236 Income not reported to Gov- ment 25,866,235 Interest paid in defaulted bonds 188,000,000 Stock and bonds issued since completion 539,560,455 Grand total 1,405,780,847 30 This amount has apparently passed out from the public through this public utility, into the con- trol of the officials of this railroad company, who are still complaining that "the man with savings is willing to invest in almost anything else than in public utilities, and who are still demanding increased rates and reduced taxes to save them from bankruptcy and ruin. This increase in stocks and bonds represents the ficticious capital which these railroad offi- cials have secured by this exchange for the sav- ings of the people. In this transaction a grie- vous wrong has been perpetuated upon both the non-investing as well as the investing public, since all who are compelled to patronize these public utilities are equally affected by the increas- ed rates necessitated by increased capitalization. All rates should be determined by the amount of capital invested in the agencies employed in the business of transportation, hence increased ficticous capital carries with it a corresponding increase in its rates for service rendered, and the prudent, non-investing shipper is thereby compel- led to contribute to the dividends and interest up- on the fictitious capital, which in the present case is about eight times the amount of capital actually required for the construction and equip- 31 ment of this public utility. , The refusal of the Interstate Commerce Com- mission to accept the outstanding liabilities in the form of stocks and bonds, in the place of their real capital actually invested, as a basis for deter- mining rates, constitutes the differences between the public, represented by the Interstate Com- merce Commission, and the railroad officials, and this difference may be as great as the dif- ference between the liabilities of a looted, ex- ploited railroad, and the actual amount of capital invested in its construction; this difference as appears above is an illustration based upon actual results, as shown by the Government records, In this connection an excerpt from the Report of a Committee of 1887, referred to above, ap- pointed by Congress to investigate the affairs of the Pacific Railroads, will be of interest to the rate-paying public: "Had the Pacific Railroads been built and man- aged upon honest methods and the Government loan been properly applied, a six per cent per an- num could have been declared upon all moneys required to complete and equip the road, and leave the road worth $124,000,000, free from debt, and at the same time could have reduced their charges to shippers nearly $8,000,000 a year." 32 This report also gives the cost of the construc- tion of the road and the several branches includ- ed in its franchise at $95,955,347. Eight million dollars a year from the first op- erating of this road up to the present time, rep- resents a sum exceeding $300,000,000 which has been obtained from the public through extor- tionate rates. THE DIFFERENT VALUATIONS PER MILE FOR DIFFERENT PURPOSES Central Pacific Railroad Subsidies and Gov't aids 'advanced for entire line from Missouri River to Pacific $199,342 per mile Appraisement by Congressional Committee in 1887 ' $48,813 per mile Capitalization at its completion by R. R. Co. $144,321 per mile Present capitalization by S. P. Co , $363,526 per mile Assessed by Board of Equalization of Cali- fornia for taxes $28,539.30 per mile $28,539.30 as a basis for taxation, $368,526 as the basis for transportation rates for the pub- lic, and $144,321 as the basis for settlement with the Government for a public utility which cost 33 but $48,813 per mile for its construction, with $199,342 of subsidies and Government aids to finance it. To paraphrase the old couplet "He twists the text to suit the several sects/' it might read "They change the base to suit each special case." Union Pacific Appraisement by Cong. Committee in 1887 $38,674 per mile Capitalized at its completion by R. R. Co $109,381 per mile Present capitalization by S. P. Co $51 1,718 per mile In these widely divergent valuations all of which have been utilized by the railroad company the settling upon a definite valuation which can be accepted in all business transactions is at the present time an unsolved problem which puz- zles Government officials, railroad officials with their tax expert, and the public as well. The valuation of public utility railroads upon a per- manent and stable basis for all business transac- tions, with all its gambling features eliminated, would dispose of the differences now arising be- tween the railroad officials and the public and at the same time restore that public confidence 24 which has been lost through the shifting of val- ues for accomplishing their various purposes. CREATION AND CONCEALMENT OF CORRUPTION FUNDS The inability of the Congressional Investigat- ing Committee to obtain access to the books of account and the vouchers relating thereto made it impossible to secure a full report regarding these transactions, but sufficient was secured to reveal the methods employed in the distribution and covering of these trust funds. item reported by the Congressional Com- mittee is the sum of $25,866,235.63 of unreport- ed earnings, apparently set aside to be applied to improper purposes, paid out on, account of pools, subsidies, rebates and overcharges. Another item is an expenditure of $4,818,355.- 67 of which the managers declined to give any explanation, or permit others to explain, most of which, as shown by the letters of Huntington, was applied to corrupt public men and influence legislation. Another item amounting to the sum of $5,- 081,659.08 was for legal expenses. 35 This Committee also finds "a large sum ex-' pended for legislation which was posted under the head of General Expenses!' General ex- penses of this character could easily absorb this entire fund with no beneficial results to the gen- eral public. Such methods as these afford &, convenient and safe channel through which the Government millions were transferred from public to private interests and were the foundations upon which colossal fortunes were built at the expense of the public. Enormous profits realized from non- competitive contracts made by themselves, with themselves, were the natural result of such con- ditions and terms as Congress gave these men. Such existing conditions present the strong- est argument imaginable for Government inter- ference, and especially so when the officials of this same public utility are at the present time using every resource to compel the Interstate Commerce Commission to approve a proposed increase in its rates to pay the dividends and in- terest on the millions of dollars represented by these fictitious securities which they issued and sold to a confiding public. The policy adopted in the management of this 36 public utility has evidently been to issue stocks to the full extent of the earning capacity of the road for paying" dividends, and then by securing the consent of these duped stockholders for a bonded indebtedness; upon the road, another har- vest of the people's savings is placed at their dis- posal. Under such a system a prosperous business produces an increased issue of stocks, and a de- cline which reduces the income calls for an in- crease in rates tq pay dividends on the stocks is- sued in times of prosperity, such as is being ex- perienced now. This is the inevitable result of such a policy, and to this may be attributed the present fianancial condition which has forced one-sixth of the railroads of the United States into the hands of a receiver in bankruptcy, while the other five-sixths are on the ragged edge of bankruptcy, demanding an increase in rates and a decrease in their taxes, to avoid a bankruptcy which this ruinous policy has invited by this "now you have it and now you don't" game, in which the investing public hold only "scraps of paper" of questionable value, while the manip- ulators of these railroad securities control the railroads, the incomes and the proceeds the hard-earned savings of the people received for these fictitious securities they have unloaded up- 37 on the people. By such methods eleven groups of capitalists now control 226,221 miles out of a to- tal mileage of 246,816 miles of railroads in the United States. This crisis in railroad circles which railroad manipulators charge to Government regulation was brought on by their own greedy grafting, grabbing methods. The simple record of this public utility requires no additional evidence to convince the public of the absolute necessity for Government regulation to protect the public from the limitless issue of stocks and bonds issued greatly in excess of the real value of the properties represented therein, as well as to guard against the extortionate rates demanded from the Interstate Commerce Com- mission for paying dividends and interest on this over-issue of stocks and bonds. After the many years of unlimited extrav- agance and immunity from Government inter- ference by enforcement of the anti-trust law, ev- ery effort for its enforcement is resented as Gov- ernment interference with private capital and as "drastic legislation tending to demoralize bus- iness interests," and its vindictive assaults upon the Administration, made through a subsidized press for the purpose of creating a public sen- SI timent against the enforcement of the anti-trust law, are in full accord with the methods em- ployed by this company in its early history; in- defatigable, resolute, resourceful, it resists or evades the law in the first instance; failing in this, it creates a public sentiment to obstruct the Administration in its enforcement of the law, in the accomplishment of which a subsidized press is a most effective agency; the subsidized parti- san public press has ever been the favorite tool of tyranny and the most dangerous and subtle foe to personal rights and human liberties, when employed against them by adverse interests. In the enforcement of this law which was so long ignored, an issue has been forced upon the public, an "irrepressible conflict" between those who produce the wealth of the country and those who control this wealth. This issue is not meas- ured alone by the finances involved, but extends to the personal right of the producing classes to live and labor and to control their individual bus- iness without dictation from the self-styled "ag- ents of the Almighty, to distribute the wealth of the country." On the humanity side of this issue are the in- dustrial classes, the working, producing public, the bread-winners, ranging from the wage earn- 3P er to the manufacturer, whoever lives by in- dustrious effort; all these are involved in this titanic struggle for an equal chance to live and exist. Against these are arrayed organized capital (the wealth which is produced by the industrial classes themselves), public utility officials, banks, bankers, insurance companies, loan associations, speculating syndicates and coupon-clipping in- vestors, subsidized public newspapers, quasi-re- ligious associations inoculated with "high fin- ance serum/' and such employees and depend- ents as are forced into line by the bread and but- ter "club" in order to create a veneering of hu- manity with which to cover the inhumanity of their assaults upon the producing classes and their right to earn a livelihood; to this may be added the majority of the six hundred and twen- ty thousand stockholder^ looking for the fat div- idends promised by the officials who issued and sold to the public these millions of dollars of fic- titious securities, also the army of local and for- eign bondholders who dictated the policy and management of our public utilities (before the days of Government regulation) and adjusted rates necessary to provide both dividends upon stocks, and interest on inflated bonds upon which a harvest of unearned millions was gathered 40 from the public, who are now called upon to re- pay these fictitious securities as well as interest and dividends thereon in increased rates. These unnatural conditions have made a new alignment of contesting forces, a re-arrangement in both the political and industrial issues. In this bitter struggle for supremacy, the cold-blooded, heartless policy of corporation managers in the manipulating and controlling of the industries and industrial classes is called in question. The control of the sources from which wealth is de- rived the land, the mines, the minerals, the oil, the coal, the timber, as well as the transportation systems necessary to convey these products to the market necessarily carries with it the con- trol of the labor and the laborers employed in its production, as well as the wealth derived there- from; hence by this process of absorption, this modern juggernaut of trusts and monopolies has crushed out all legitimate competition resulting from the natural law of supply and demand which should regulate prices, and in its place substituted the arbitrary price demanded by the trust, regardless of the rights of the producers. By this new alignment the disintegration of political parties has already commenced, party ties are being ignored, and the independent bus- iness man of the earlier days is now the servant 41 of a moneyed aristocracy which arbitrarily dic- tates prices and rates from the producer to the consumer, for both seller and purchaser. Under this policy inaugurated by those who control capital, the barrier between employer and employee is being obliterated; the unity of in- terest involved in the harmonious working of employer and employee against this government of trusts by the trusts, in favor of a Government by the people and for the people, is evidenced by the actions and utterances of the leading, think- ing men of the industrial classes. "To hang to- gether or to be hung separately" is the choice given the industrial classes in the issue now made by organized capital controlled by cold-blooded, soulless, selfish corporations. VALUATION FOR PUBLIC UTILITIES Savings banks and insurance companies hold about one-tenth of these fictitious securities is- sued by these manipulating officials, hence are directly interested in this issue, as will be ob- served in the actions of the bankers' convention recently held at Denver, Colorado. At this convention its president took occasion to put in a plea before the public for what he terms "a fair treatment of the railroads." He calls for (f a new alignment of public thought and 42 of public effort, a joining of shippers, railroads and investors to urge upon the Interstate Com- merce Commission and their servants, the need of the country for good equipments and ability to push developments which could only be real- ized by restoring the confidence of the investing public, and until that time we will never get back that degree of prosperity which this abund- antly resourceful country, when given a fair chance, is capable of." Ignoring the mis-application of the millions of dollars collected from the public, which if properly used should have made ample provision for the necessary equipment and development re- ferred to, he asserts the basis of valuation for determining rates as follows : "That capital will not be attracted by figuring upon what has been invested or upon any cost or physical valuation of property, but that the value of property depends upon what you can do with it." This public utility has been successfully used by its officials to gather and control the earnings of the people, amounting to about eight times the cost of its construction, according to the fictitious securities now held by the investing public, and 43 to secure interest and dividends upon these hold- ings, the banking capitalists advise "a joining of shippers (rebaters?), railroads and investors to urge upon the Interstate Commerce Commission and its servants" the need of good equipments and to push developments. This Interstate 'Commerce Commission was also reminded by this convention that "they were created not only as guardians for the shipper but also for railroads, and that if these were to suc- ceed in their service to the public, a new vision and a new disposition on the part of this commis- sion must be brought about by the pressure of the business world'' and that "this view is at last taking hold of the business world." From the banker's viewpoint, this new vision to be impressed upon the commission is, interest and dividends upon the millions of fictitious cap- ital which they hold; from the viewpoint of the public it is a corresponding increase of rates to be paid by the public in its use of a public utility. The pressure of the business world is to be brought in opposition to the Government regula- tion so far as it affects the interests of capital- ists. The statement of this banker president that "this view is at last taking hold of the business world" is evidenced by the activities lately mani- fested in various directions, extending even to the control and utilizing of the sources through which the general public ordinarily obtains its information, and having once secured control of these agencies, the suppression and concealment of facts which are vital to the public is easily ac- complished and false or misleading statements calculated to create a public sentiment favorable to the interests involved, is spread broadcast throughout the country. In this way the public press is effectively used to create and direct this pressure of the business zvorld in the enforcement of the demands of the speculating capitalistic classes in the control of the wealth and wealth- producing classes. THE METROPOLITAN PRESS AS AN ALLY An illustration of this situation was recently given when the president of a transcontinental railroad, under the conspicuous heading "DRASTIC REGULATION INJURIOUS TO RAIL- ROADS/' makes the statement that "the public temper has been in favor of drastic regulation until the man with savings is willing to invest them in almost 45 anything else, rather than in public utilities that are regulated," and he designates regulation as "an effort to control private capital as if it were public money" ! He says that "railroads are treated with mis- trust, and mistrust has caused a withdrawal of public confidence and produced a general busi- ness timidity from which has resulted the long business period of unemployment and ;distres, the like of which has never before been known/' Reasoning from this condition, he asserts that "when the employer is prosperous his employees have employment at good wages and are pros- perous, and when the people who work discover that this condition improves, just as soon as their employer is prosperous, we will have some prom- ise of relief. We will have to learn that we are one big industrial family, we are all prospered together, or we are not prospered at all." The suggestion here held out to the general public is that the railroad, as the arbiter of all our industries, must be made prosperous by the "man with savings" before the general public can hope for prosperity. In short, that the pros- perity of the public can come only through a pros- perous railroad company. 40 Both the facts and the admissions of the writ- er of the article above quoted show a strained and unsuccessful effort to hold Government reg- ulation and the unwillingness of the "man of sav- ings" to further invest, as responsible for the conditions he so graphically describes. The plundering of the public by the officials in control of a public utility was the occasion and necessity for Government intervention or reg- ulation which is now complained of. The difference between the true, physical val- ue, and the fictitious values represented by the watered stocks and bonds which have been sold by these officials to the public, is the foundation of the complaint of "drastic regulation"; and the refusal of the Administration's Commissions to approve and sanction the issuing and sale of stocks and bonds in excess of the true value of the properties affected, or to use fictitious capital as a basis for increasing the rates of transporta- tion to be paid by the, patronizing public, consti- tutes this "drastic regulation" which capital now calls for a pressure of the business world to op- pose. This business depression, "this period of un- employment and distress" came not through reg- 47 ulation, but came through a lack of regulating the dishonest practices of non-regulated public officials in the control of a public utility. To create a favorable sentiment this official, at the head of this public utility, builds upon the false premise that the regulation of the predatory methods which are employed in the management of a public utility, is injurious to legitimate bus- iness, and his deductions derived therefrom to maintain his declarations are illogical and fal- lacious. In this presentation through the public press he gets the cart before the horse, and substitutes effect for cause in an effort to justify this un- warranted assault upon the Government and the investing public, as his declarations above quot- ed will show. This "period of unemployment and distress," he therein admits, "resulted from business tim- idity/' and this business timidity u was produced by the withdrawal of public confidence/' and the withdrawal of public confidence was due to the mistrust of the public. What caused this mis- trust, and what this mistrust caused to be done, will place the responsibility for the present condi- tions where it properly belongs. 48 There was no apparent distrust by tHe public until the misappropriations of many millions of dollars of the public money had destroyed public confidence in these officials who were reaping a still greater harvest by selling ficticious secur- ities to the confiding public; up to this time no Government regulation was exercised, it had slumbered until a plundered public demanded pro- tection from the extortions exacted by unfaithful and unscrupulous officials controlling the public utilities. As effect must always follow cause this Gov- ernment regulation which came after mistrust, after wihtdrawal of public confidence and after businss imidity, they must be classed as the effect rather than the cause, and this attempted substitution of effect or cause, in order to preju- dice and mislead the public against the adminis- tration of the law, shows either an intentional pervertion of the facts or a brain so saturated by railroad interests as to be unable to descern be- tween things that are real and things that are imaginary; the active participation in the crea- tion and employment of ficticious capital for busi- ness purposes for a long period of years may ac- count for this substitution of affect for cause ; so long as the public press will take it at full value and not permit contradiction in its columns. 49 A reply to the metropolitan papers which pub- lished this article of the railroad official was re- turned unpublished, with the explanation that any public statement issued by a railway presi- dent, or any man of large affairs, or in the public eye and news as conspicuous as the writer of the railroad article is news in the sense of that word in newspaper offices." "On the other hand any discussion which the statement might start, would cease to be news immediately and become a discussion/' When the public press is open to (( any state- ment made by a railroad president, or any man of large affairs" whether false or misleading or true and the public are excluded from any re- ply thereto, no comment is needed to define the attitude of the large metropolian press of the country. How PRESSURE OF THE BUSINESS WORLD Is ACCOMPLISHED THROUGH THE Y. M. C. A. OF NEW YORK The persistency and the resourcefulness of the capitalistic leaders in the promulgation of the new thought and the new alignment is apparent in its recent utilization of the Y. M. C. A. of New York in carrying on its missionary work. 50 A lecture bureau composed of leading capital- ists, the General Electric Company, prominent electric, lighting, gas, water and power compan- ies, the Westinghouse company, brokers, bankers and capitalists and other Wall Street magnates, including the House of J. P. Morgan & Com- pany provides free lectures to be delivered before the Y. M. C. A. of New York, which are print- ed and distributed to the public, as the literature of the Y. M. C. A. of New York, being issued under the auspices of the Y. M. C. A. of New York it has the apparent endorsement of an as- sociation of 625,599 members with 497 libraries to aid its distribution, and over 550,000 student young men, just entering upon the business ness activities of the business world. In this man- manner the doctrine of high finance as taught by the free lectures furnished by the Wall Street magnates is brought to bear upon over one mil- lion of the most active participants in the busi- ness and industrial world of the near future. These illustrate but two of the many ways through which the pressure of the business world is being utalized to perpetuate the power of those who control the wealth and the wealth producing classes of the country. Since capital has forced upon the public this 51 alignment of parties a clear issue has been raised between those who produce the wealth this in- cludes all those who obtain a livelihood by their industry and the non-producing classes who control the wealth which others have created. The cause of this irrepressible conflict was forc- ibly expressed by the French Assembly in 1788 in these words: "Ignorance and contempt of human rights are the cause of all public misfor- tune and corruption of government." This pres- sure of the business world is controlled and mar- shaled by capitalists to oppose the Government in its protection of human rights, and is a grave cause of alarm for the industrious and wealth- producing classes who, with reason, are asking the same question which the rich ruler was ask- ing centuries ago, "What must I do to be saved?' 7 This condition has brought to the forefront the question of Government regulation and Gov- ernment ownership, which will demand the thoughtful consideration of the public in future, and will form an issue in the coming political campaigns. For this reason a brief summary of what has been done under the name of public utility in the past, under the management and control of this wealth-distributing class, will be of interest to the public at this time. 52 It is evident from the reports of the Congres- sional Committee appointed to investigate the af- fairs of this Pacific Railroad, that this public uility, "under honest methods," could have been constructed for $95,955,347 and with its equip- ments, was valued at $124,000,000 in 1887; that the officials controlling and operating it have received in Government aids, bonds, stocks and net earnings, the approximate sum of $1,501,- 794,036 in excess of the cost of construction and the cost of operating up to 1915. Had the Government received this amount of money for the construction and operating of this same public utility, it could have paid for the entire construction of the road, and all the ex- penses of operating the same, the entire bond in- debtedness for advances in aid of its construc- tion, with all the maturing interests, and still have a balance of approximately the sum of $933,421-299; and after paying the bonded indebt- edness incurred subsequent to the completion of the road, it would still leave a balance of $543,- 066,293 for equipments and dividends. As the estimate is based upon public records and Gov- ernment reports, it may not coincide with the re- ports given to the public through a subsidized press by the officials of the road as prepared by its expert book-keepers, if however the public in S3 relying upon records is in error, it is for the of- ficials of this public utility to restore public con- fidence by an accounting for this large sum real- ized from the savings of the public, which is not explained in the records available to the general public, hence its mistrust and lack of confidence. In view of this situation the public may profit- ably recall the past history of this public utility, and refresh its recollection of some of the evil re- sults which have followed from this unregulated unruled management of this public utility. The introduction and establishment of Chinese labor in the construction of this public utility was the beginning of our oriental troubles; the creation of the lumber trust of the Pacific Coast was the work of this company, in selling over three hundred thousand acres of timber land to thirty-nine timber barons, which, under the terms of the grant, could be sold or disposed of only to actual settlers in quantities not ex- ceeding one quarter section to a single purchaser, and at the Government price of $2.50 per acre. This sale to these thirty-nine timber barons at an average price of $7.50 per acre was in direct vio- lation of the provision of the grant under which this company held the lands, and by this act the rights of the home settlers were made subordi- 54 nate to the speculating interests of the lumber trust. The 2,300,000 acre land grab in Ore- gon, the cold-blooded shooting and ejecting of the actual settlers from the homes they had made in the Mussel Slough district, with the consent and at the request of this company, stands as a bloody record of lawless greed, this with the mil- lions of dollars of oil and mineral lands unlaw- fully appropriated, while it maintains its strang- ling grasp upon the industries and industrial workers of this Pacific Coast, clearly demon- strates the spirit and purpose which actuates this colossal capitalistic monopoly in its defiance of law and its contempt of human rights. It is not unreasonable to believe that what has been done in the past will be repeated in the fu- ture when favorable opportunity is afforded, hence in the consideration of Government ownership or Government regulation the general public must feel more secure under the protecting care of the Government, than under the care of a cap- italistic monopoly whose protection in the past has been such protection as vultures give to lambs, covering and devouring them." While these unnumbered millions have passed from the public into the control of the officials of this public utility, they are still clamoring for 55 further investments by the men with savings, for an increase in its rates for service, for a de- crease in its taxation, and a limitation of its lia- bilities to the public, and these public records in- dicate that the Government regulation of the past has been a failure and that efficient Regulation by the present or future Administrations will be re- sisted with all the pressure of the business zvorld a capitalized monopoly can command. 56 TAXATION Taxation is a necessary incident of civiliza- tion. Originally it was limited to a personal service and attached only to land, which was the only source of revenue to the ancient kings. The ancient levies were in the nature of a modern land tax, when every tenant of a knight fee was bound' if called upon, to attend the king in his army for forty days in every year. Later, as this personal attendance became irksome, the tenants found means of compounding it, first by sending others in their places, and subsequently by making pecuniary satisfaction in lieu thereof. This pecuniary satisfaction at last came to be levied at so much for every knight's fee, which was first levied in the time of Henry the Second. This precedent was afterward used by the king as a means! of oppression in levying on the land- holders whenever kings went to war, in order to hire mercenary troops and pay their contingent expenses. By the abuse of this precedent the annual or perpetual tax rate of one-fifteenth part of the val- ue of every township, borough and city in the kingdom, which established a certain sum to be raised each year, was substituted for an uncer- 57 tain amount dependent upon the whims or neces- sities of the king. The extortions which followed this abuse of precedent became a matter of national complaint and culminated in the demand for the Magna Charta which King John was forced to give to the people, wherein it was provided that this tax should not be imposed without the consent of the common council of the realm. As the inherent hereditary revenues of the king were from time to time granted out, the king was in some meas- ure dependent upon the people for part of the royal revenue. About the time of King Richard II and Henry IV the assessment of lands fell into disuse by the introduction of subsidies, which was a tax upon personal property as well as lands. This had be- come necessary owing to the large grants of lands to the barons, dukes, earls and court favor- ites, from which lands the king's revenues were derived. This tax was not imposed upon property, but upon persons in respect to their reputed estates, which included lands as well as goods, thereby shifting a large share of the burden of taxation from the land-owning barons and court favorites to the landless tenants and middle classes. This 58 tax was assessed at double the amount for aliens. The method of raising this tax was charging a particular sum against each county, according to the valuation given, and this sum was assessed and raised upon individuals (their personal as well as individual estates being liable thereto) by commissioners appointed in the Act, who were the principal land-holders of the county and their officers. This was styled the annual tax. To this was added the annual tax on malt. Besides the an- nual taxes were the perpetual taxes, which also applied to the masses, and wlrch assisted in lightening the taxes of the nobility owning lands under the grants from the Crown, for in propor- tion to the decrease in revenues resulting from the withdrawal of these lands from assessment, by the same proportion were the taxes of the masses increased, for the revenues must be paid in full regardless of the decrease in resources resulting from these grants by the Crown; the masses made up the loss. The nine perpetual taxes on persons were as follows, and may well be accredited with the old saying "Death and taxation are certain": First. The customs tax of duties, toll, tribute 59 or tariff, payable on merchandise exported or im- ported. Second. The excise tax, which is the inland imposition, paid sometimes upon the consump- tion of the commodity; frequently, upon the re- tail sale which is the last stage before consump- tion. Third. Tax upon salt. Fourth. Duty for carriage of letters. Fifth. The tax imposed on parchment and pa- pers whereon legal proceedings or private instru- ments of almost any nature whatsoever are writ- ten. Sixth. Duty upon houses and windows, upon every chimney in the house, and upon every hearth in the Kingdom. Seventh. A duty of twenty-one shillings per annum for every male servant retained or em- ployed in several capacities mentioned as speci- fied. Eighth. Licenses upon hackney coaches and chairs in London and the parks adjacent. Ninth. Duties upon offices and pensions, which was practically a five per cent income tax. 60 Shifting the burden of supplying the king's revenue from land and land-owners to the masses by a government composed of land-owners or landlord barons, has its parallel in our own Re- public. It is another demonstration of history repeating itself in a republic as well as in a mon- archical government. The prominent and dis- tinguishing feature running through these dif- ferent legislative changes is the placing of the burden of taxation primarily upon the laboring classes when they held and occupied the land, and later when the land had passed into the posses- sion of the barons and lords, the burden was shift- ed from the lands and passed to the laborers again by the use of the indirect system of taxa- tion as described above. Parliament was a body of land-owners ; hence both the incentive and power to accomplish this change. Taxation gravitates to the masses as metal is attracted toward a magnet the world ov- er. On the Continent, taxation of land and tax- ation of personal property came singly, one at a time. When the vassals had possession of the lands, the land alone supplied the king's revenue. Subsequently, when these small holdings were centered in the nobility, the barons, the earls, the dukes, the lords and other titled members of 61 the king's household, then the assessment of the persons and personal property came with relent- less vigor. It was not satisfied with toll, tariff, excise tax, tax on salt, carriage license, marriage license and death certificate, but sent its public officers, appointed by the crown, every year to view the inside of the house, to count the win- dows and doors, chimneys and hearthstones, to supply the king's revenue, which had been de- pleted by the granting of these lands to the no- bility. The means employed to create the pres- ent conditions in our Republic may differ in form, yet the results have been substantially the same, in placing the burden of taxation upon the labor- ing and middle classes, relieving the non-produc- ing and leisurely class of the burden of taxation. Primarily agriculture held the foremost place among the industries of this Republic, both as to numbers employed and as to capital invested. This condition prevailed for several decades, and during this period there was comparatively little assessable property in sight, except the land and the property used thereon, which was always a- vailable for taxation. As the country grew and the population increased the needs of the Govern- ment grew in proportion, and a corresponding increase in revenues was required. 62 In addition to these ordinary expenses were added the debts incurred in the war with Great Britain, in the struggle for independence. This burden fell to the lot of our forefathers and through labor and land was honorably dis- charged. During this time other industries were being established; manufactures and mining came hand in hand, to be followed by railroads, the telegraph and the telephone, all necessary accompaniments of an advancing civilization, and all heartily welcome as co-helpers in our growing Republic, not only by words but by sub- stantial subsidies, lands for rights of way and for factory sites, subscriptions for stock, bonds to be paid by assessments on the lands already overburdened by taxation. These young indus- tries increased more rapidly in business import- ance than the assessment roll indicated, which resulted in more mouths to feed, more people for Government oversight, with a correspondingly increased demand for Government revenue, with- out a corresponding increase of taxable prop- erty from which to supply the increase demanded by the rapidly increasing population, the major- ity of whom are neither food producers nor tax- payers. Under these conditions about ninety per cent of the Government revenues were con- 63 tributed from the farms and farm properties during the first century of our existence as a nation. Meanwhile, the manufacturing in- dustries, being fostered by Government sub- sidies, made more rapid progress than agricul- ture, which during this period was left to care for itself, subject, however, to a tariff tax levied in the interest of the industries. Under these conditions our modern legislators have closely followed the example of their Eng- lish cousins in the British Parliament by legis- lating the burden of taxation upon the laboring and middle classes, while favoring the moneyed interests, monopolists, trusts and non-producing classes, as is shown by a comparison of the tax- ation of different interests under the different methods of assessing the various interests. The agriculturalist, taxed upon a property basis, is assessed as follows: First. A poll tax. Second. A tax upon the land and buildings. Third. A tax upon all implements of husband- ry used in cultivating the land and harvesting the crop (income). Fourth. A tax upon the team used in cultivat- 64 inng the land in producing the crop which con- stitutes the income; also upon all poultry, cows, hogs or other stock as well as personal property of every description, not specifically classed as exempt under the State laws. Fifth. An additional tax upon each bearing fruit tree, grape vine or growing alfalfa field. While these added improvements which are cre- ated by the labor of the land-owner and produce additional wealth for the State, as well as add to the resources of the Government, an addition- al assessment of about $50 per acre (penalty?) is added for trees and $15 per acre for alfalfa. A penalty for the non-producing owner of un- cultivated lands, for misappropriating the Gov- ernment resources, and a premium for the crea- tion of increasing revenues, would be more ap- propriate, and a greater incentive to the indus- try and industrious owner. Sixth. The products of this poll taxed, tool taxed, team taxed, land taxed, tree taxed ag- riculturalist, are subject to another tax upon the crop produced, provided it is not disposed of be- fore the date designated by law for making the assessment. Seventh. The income tax is still waiting, for 65 whatever amount may exceed the $3000 exemp- tion from this six times taxed property already. Eighth. Last but not least is the indirect tax, which reaches land-owner and landless alike. It commences with our existence and ends only in death; it collects on delivery, and is as heartless and unfeeling as a corporation trust. It was cre- ated for monopolies and trusts to exact tribute on the necessities of life; be it tea, coffee, sugar, implements of husbandry for the farm, the gar- ment we wear, the food we eat or the material of the house which shelters us, it must be paid. It was this heartless and cruel system which placed a tax upon every house or hovel, every chimney, window and hearth in England, and forced our forefathers across the seas in search of freedom. It was this which nerved them through the bloody struggle with the mother country in the days of the Revolution; it was this which in- spired that immortal declaration of equal rights upon which they (supposedly) founded this Gov- ernment. . This creator of monopolies, trusts and multi-millionaires, which we call tariff. Ninth. When dead and buried taxation still survives, for the inheritance tax still hovers ov- er the grave to take its toll on whatever escapes the greedy grasp of the tax-law, during his life of labor, 66 While the wealth-producing, industrial classes are struggling under the heavy burden of taxa- tion, the non-producing classes, including non- residents and foreign syndicates owning lands which are increased in value by community labor, are relieved from the main burden of taxation under the present system of raising revenues for the Government, as ordained by the organized forces which dominate elections and thereby con- trol the Government. The above list of enumerated taxes applies to the owners of improved farms, which constitute less than six per cent of the population of the United States according to the census, reports of 1912. Of the balance of the ninety-six per cent of the population, five and one-half per cent are engaged in agriculture, either as laborers or farmers' wives, making a total of less than eleven per cent of the food-producing class. Out of this balance of eighty-nine per cent of the popula- tion, a large proportion are practically exempt from property taxation. The professional, the domestic and personal service as well as wage-earners, tradesmen and traders, clerks, bookkeepers, bankers and the army of transportation and Government service men have little assessible property in sight when 07 the assessment roll is made up. One is almost justified in accepting the classification once made, that "the world is made up of three classes, viz., wealth producers, beggars and thieves/' with a ratio of producers as eleven to eighty-nine per cent. That larger class of our community who cre- ate no material wealth for the nation are receiv- ing incomes equal in amount to, if not greater than those of the wealth producing class. All these several classes demand and secure equal protection of life, liberty and security in the pur- suit of happiness; hence they should and under just and equitable laws would be compelled to bear their equitable proportion of the expenses of maintaining that protecting Government. Taxation based upon tangible and visible prop- erty only, is unjust and wrong both in principle and in practice, and can be justified only upon the assumption that property alone is a subject for Government protection. The Declaration of In- dependence guarantees protection to life, liberty and the pursuit of happiness as well as property. The protecting arm of the Government is as nec- essary and is as equally demanded and enjoyed by the landless as by the land-owner; therefore the burden of supporting the Government should 68 be equally shared by all who receive its benefits. A careful analysis of the basis of taxation will demonstrate this to be logically and equitably correct. The standard by which property values are estimated is the income or revenue derived there- from; hence in the assessment of land and all land properties the valuation of assessment is de- termined by the amount of revenue it produces, or income The terms revenue and income are synony- mous terms, applicable to receipts, either from land or from salaries ; hence whether taxed as a land tax (which assessment is determined by the income) or as an income tax, direct, it is imma- terial to the party paying the tax as well as to the Government on receiving it for revenue. To illustrate : Mr. Agriculturalist has land from which he receives an income of $1000, the prod- uct of twenty acres which are assessed at $600 per acre, a total of $12,000 upon which he pays taxes. This assessment of $12,000 represents an income which pays six per cent interest on the investment, together with the labor and expense of producing and marketing the crop. The in- come was a factor which determined the asses- sible value for Mr. Agriculturalist. Messrs. Professional, Broker, Banker, Me- chanic, Bookkeeper, and a host of this no-prop- erty-in-sight class, have incomes ranging from $1000 upward (I noticed one insurance pres- ident recently drawing a salary of $100,000 a year), whose ability to do is their non-assessible stock in trade, from which these incomes are de- rived. All these classes are as dependent upon the Government and are claiming the same pro- tection as the land-owners. The army, the navy, the post office service, the parcel post, the public schools, the asylums, hospitals, alms houses, pen- itentiaries and prisons, as well as the entire ju- dicial system and many other services which are indispensable to their enjoyment of life, liberty and happiness as well as security of person, property and income they are receiving, while the agriculuralists, representing but six per cent of the population, are taxed for land, tools and every necessary in producing the income, all im- provements produced by their labor and upon the products of this land, when held for a desir- able market beyond control of the speculator. Upon what rule of reason, righteousness or eq- uity is this system of taxation based ? How THIS SYSTEM FAVORS BANKS AND BANKERS 70 How this system favors banks and bankers is apparent from the public statement of a city bank advertising its resources. I A commercial bank organized less than 50 years ago Capital actually paid up $ 1,000.000.00 Reserve and contingent fund 1,757,149.57 Employees' pension fund 158,261.32 Assets $55,644,983.27 The above statement shows the active re- sources which produce the income to be over $55,000,000, while the assessible capital is less than $3,000,000. The Government furnishes a fifty-five million protection for a three million payment. Who pays the balance? The agricul- turalist, in this instance, pays on all the acces- sories employed to produce the income, the bank pays on three fifty-fifths of the capital and ac- cessories employed to secure its income. This $55,000,000 which is used by the bank in securing its income is under Government protec- tion, guarded by Government police, its legal rights guarded by the Government's judiciary and the income therefrom should be subject to a proportionate share of the expense of maintain- 71 ing the Government whose aid it invokes and en- joys, and thereby relieves the wealth-producing class from paying the proportionate share due from the bank, and especially so since all the wealth which has been so successfully manipu- lated by the banks was the product of labor and land. MANUFACTURING AND AGRICULTURAL INDUS- TRIES COMPARED In the year 1909 the agricultural and manu- facturing industries each produced ov;er eight billions of dollars of products to be added to the wealth of the nation. The assessable capital em- ployed by the agriculturalist in producing this wealth was two and one-half times greater than the capital required by the manufacturers ; hence the taxes of the agriculturalist would propor- tionally exceed those of the manufacturer when based on capital instead of income, by two and one-half times. The eight billion dollars of wealth contributed by the agriculturalist was created from land and labor with no draft on the wealth of the nation for its production. The eight billion dollars con- tributed by the manufacturing industries was se- by drawing on the national wealth for 72 twelve billion dollars of material already exist- ing, and by adding labor thereto increased its market value eight billion dollars by changing the form of existing matter already created. Under these conditions the agriculturalists is in the position of the man who both dances and pays the fiddler. While the manufacturers are ac- credited with the eight billion dollars for labor bestowed upon materials already created, the ag- riculturalist not only brings into existence the eight billion dollars of wealth which he contrib- utes but also pays two and one-half times the Government tax upon his industry that is re- quired of the manufacturers. TAXATION OF PUBLIC UTILITIES The taxation of public utilities has been a fruitful field of contention between the taxpayers and the railroad companies. The increased extension has been phenomenal, and the prop- erty liable to assessment for taxation has been unsatisfactory to the taxpaying public. From a mileage of 229 miles in 1832 it extended to 349,- 992 in 1910, with a capitalization of $18,417,- 132,338 a sum equal to 64 per cent of all farms in the United States, or 52 per cent of all the farms and buildings, or 50 per cent of all farms, buildings and farm machinery, and implements 73 of husbandry, or 45 per cent of all farms, build- ings, farm machinery and implements of hus- bandry wjth all teams, poultry and stock of all kinds with such appurtenances as constitute a complete equipment of the farm. The railroad employees increased from 1,017,- 653 in 1900 to 1,699,420 in 1910, and increase of sixty-six and nine-tenths per cent in ten years, while the increase of the agricultural class dur- ing this period was only ten and fifty-seven hun- dredths per cent, including the Chinese, Japan- ese, colored and Hindu. During the same period the manufacturing employees gained thirty per cent. Under this burden of supplying products for the increased population and revenues for the expanding Government, the taxpayers made an effort to equalize this burden of taxation through legislation, and in pursuance of this plan a Con- stitutional amendment was adopted and a law separating State and county taxes was passed by the Legislature of the -State of California, by which law the taxation of public utilities was to be made upon a revenue basis, in lieu of the tax upon the capital invested. The rate as well as the amount of revenue subject to taxation was to be determined by a State Board of Commission- 74 ers, appointed by the Governor of the State, transferring the assessment of the property and fixing of rates from the assessor, elected by the people, to a commission appointed by the Gover- nor. Under such a system the party or political machine which controls the offices also controls the rates of taxation for public utilities. Taxa- tion of public utilities like our public lands is fast passing out of the control of the peop ! e, upon whom the Government depends for its support. In the separation of State and county taxes a system of taxing the income or revenues of the railroads (a public utility) was adopted in lieu of a tax upon the property employed in producing the revenue. This plan in the control of unprin- cipled men might prove to be taxing a shadow in place of the substance which created it. The rate of taxation as well as the amount to be taxed is practically controlled by a State Board of Com- missioners appointed by the Governor of the State. Two distinct systems of taxation are thereby created, each upon a distinctly different basis, one for the industrial class, the other for the pub- lic utilities. Under the limited working of the new law, it is claimed that the taxes of the rail- roads have been increased by its application, but 75 to what extent the public are not informed. If, however, it fails to equalize this unequal burden of taxation which has predominated in the past, its mission will be fruitless and a failure, The present tax laws which distribute the bur- den of taxation so unequally and so unjustly are a relic of the old feudal system, which has from its beginning- to the present time been the vehicle employed for shifting the public burdens from the privileged class to be carried by the industrial and working classes, and through the manipula- tions of those who control legislation, it has ac- complished that which the autocrats of the Old World achieved under the same system, the sub- jugation of the masses. GROSS INCOME AND XD VALOREM SYSTEMS COMPARED This is especially true in California, where the per capita tax is almost double the per capita tax of the average of the forty-nine States which comprise this United States. Another startling feature of this dual tax law is the fact that it furnishes the public utility and public service corporations a way to evade their just proportion of the burden of taxation, and by force of law compel the taxpaing public to make 76 up for their delinquencies and evasions by these enforced contributions which we call taxes. This gross income system is used in the col- lection of taxes from public utility and public service corporations, railroads, express compan- ies, electric light, gas, power and water compan- ies banks, loan associations and insurance com- panies, the ad valorem system is used for collect- ing these enforced contributions from the general public who are not included in this favored cap- italistic class. In the ad valorem system the rate is determ- ined by an official chosen by the people for this special purpose, while in the gross income system the rate is determined by a Board of Commis- sioners appointed by the Governor ; the assessor chosen by the people bases his assessment upon the value of the property assessed, while the board appointed by the Governor bases its as- sessment of public utilities and public service corporations upon the gross earnings or income as reported by these corporations ; these rates, as established by this board, vary from 1 to 4% cents upon the incomes of the different corpora- tions. No uniform rate is applied to any two classes. Applying this same method to a general income tax, each slass would have its special rate 77 by which its income would be assessed to secure its proportional share of the income revenues. With A's income assessed at a 1 cent rate, and B's at \y 2 , C at a 2 cent rate, D at 3y 2 and E at 4^4, as with public service corporations under the present system, no one outside of the public service corporations and their tax experts could be persuaded that uniformity of rate or equitable distribution of the burden of taxation had been secured thereby. Under present tax laws, one system is an open assessment by the elected representative of the people upon a visible, tangible property, the oth- er upon a shadow which is influenced largely by the administration and by its system of book- keeping, regardless of the amount of property employed; in the ad valorem system the failure of income brings no relief from the burden of taxation the "pound of flesh" is exacted re- gardless of its consequence to the unfortunate taxpayer; in the gross income system the same condition of failure brings a full release to the unfortunate public service corporation; this feature should brand the dual system as unjust, as unequal class legislation in the interest of the privileged classes. An investigation of the results attending the 78 enforcement of this dual system, will furnish evidences of the influence of privilege in the cre- ation of this dual system for taxing the public service corporations by one system the general public by another. To inaugutrate this gross income system it was necessary to reduce these corporation in- comes to an ad valorem basis, and in doing this, the percentage upon the gross earnings should produce a sum equivalent to that obtained from the general public who are assessed upon the ad valorem basis, in order to equalize the burden of taxation among all classes of taxpayers. In this case it is assumed that the average rate of taxa- tion throughout the State is one per cent on $100 valuation. The average State rate at this time, as re- ported by this Commission, was 1.386 cents on the $100 valuation of property. Upon the as- sumption, however, of a one cent rate as a basis, it fixed a rate of 4% cents to be assessed upon the gross earnings of the railroads, and other rates varying from 1 to 4^2 cents for car com- panies, express companies, telegraph and tele- phone companies, banks and insurance compan- ies who constitute the public utility and public service family, who are separate from the com- mon herd of humanity, like sheep from the goats in the corral for public taxation. In making up these statements for the intel- ligent public the foundation will be based upon facts furnished by the statistics and reports of the Departments at Washington, in order to avoid the entangling mystifications which might arise when relying upon the statistics and memoranda furnished by the expert accountants who have in the past so adroitly evaded both investigation and publicity of its methods. Hence property values and income values which are necessarily em- ployed in the demonstration of these two sys- tems are obtained from Government sources and are untainted by corporation jugglery. The average tax rates used in this computa- tion were taken from statements issued from the Controller's Department of the State of Cali- fornia. An examination of the tax lists shows the av- erage tax rate in this State to be 1.664 cents on the $100 for outside property and 2.1 cents on the $100 on inside property. Previous to this dual tax law, the bulk of the railroad property (its operative property), con- sisting of buildings, engines, cars and other so equipments, were subject to the payment of both a municipal and State tax, since the operation of this law, by which the separation of State and county assessments is affected, the property of the railroad is no longer subject to municipal as- sessments either for general taxation, special taxation or licenses as are required of other bus- iness interests. It is evident from these existing conditions that the public utilities and public service com- panies gained an important victory over the tax- paying public when at the last legislature they secured a two years postponement in the righting of this existing wrong, which is being perpetrat- ed upon the public. To the general public under the ad valorem system this 4% rate to the railroad, 4 cent rate for electric, lighting, gas and power companies, 3% rate for telegraph and telephone companies, 2 cent rate for express companies, where the big melon dividends are so often reported, a \]/2 cent rate for insurance companies, and a 1 cent rate for banks and loan associations, with such results as have followed its operation, seem more like the patch-work of a public utility ex- pert, to cover the evasions and shortcomings of tax-dodging corporations, than an honest effort 81 to equalize this unequal burden of taxation among the different classes of taxpayers of this commonwealth. Another significant feature of this tax law which adds to the burden of the ad valorem tax- payer is the exemption of the operative property of these privilegeoTcorporations from local taxa- tion by counties, cities, towns and districts, there- by exempting property of these favored compan- ies amounting to over $400,000,000 from local taxation under the following provision: "This tax shall be in lieu of all other taxes and li- censes, State, county and municipal, except on coun- ty and municipal real estate/' This last exception relating to the real estate furnishes no relief, however, to the ad valorem taxpayer, since the amended Constitution pro- vides that the amount paid on such real estate, as county or municipal taxes, by this favored class, shall be deducted from the payments assessed on the gross incomes of these public utilities and public service corporations." Another significant feature of this expert work in separating State from local taxation is shown in another provision which shifts the responsibil- ity of all errors and miscalculations, if not all 82 premeditated inequalities, upon the ad valorem taxpayers. Having provided that all revenues derived from public utility and public service corpora- tions shall be exclusively for State and school purposes, and having been authorized to estab- lish a rate upon which to levy an assessment for this purpose, it is provided that "A general ad valorem tax may be levied, if the revenues de- rived from the sources mentioned fail to meet the requirements of the State." Under these two last mentioned laws all special assessments like the $5,000,000 Panama-Pacific Exposition tax as well as all deficiencies resulting from errors of judgment and miscalculation, either intention- al or unintentional, fall harmlessly about this privileged class, since the responsibility therefor has been shifted from this privileged class to the ad valorem taxpayer, who must pay for all er- rors, mistakes and bad judgment. With such glaring inequalities resulting from the application of this new system of taxation one feels justified in investigating its source, the agencies through which it has come as well as the underlying principal upon which it is based, or assumed, for a law without a basic principal is as a shadow without substance, or a dream of 83 an imaginative theorist, to be forced upon the people under the form of a law a practical dem- onstration of the danger and folly of this central- ization of power whereby the control of public affairs passes from the people to the privileged classes who fill the public offices with their chos- en tools. In the fixing of these rates the State Board of Equalization, by discarding property valuations which were tangible as its basis, built upon a the- ory that the rates assessed on gross income would be substantially equivalent to the rates of taxation paid by other property owners assessed under the ad valorem system. To carry out this plan it became necessary to reduce the corporation gross income tax to an ad valorem basis, and in doing this it arbitrarily adopted the ratio on gross receipts at one per cent on $100 value of the property. The average State rate for assessing property at this time was 1.1386 per $100 of actual value, and when assessed at less than its actual value, this rate would be proportionately increased; if assessed at 60 per cent of its actual value, as is the general custom, the average tax rate would be proportionally increased. How the tax ex- 84 perts arrived at their one per cent basis is a secret which the general public is not supposed to un- derstand while paying this unequal burden of taxation resulting therefrom. In seeking a uniform basis upon which to levy a tax which shall be equitable to all classes, it must be uniform in rate as well as applicable to all classes, not a discriminating rate on one class of property or one class of taxpayers and anoth- er rate upon another class of property owned or controlled by still another class of the common- wealth ; it should be uniform and definite, with no special preferences smuggled in for the ben- efit of any privileged individual or class, and in doing this, land values can be more easily and definitely reduced to a revenue basis than the gross earnings of a public corporation can be re- duced to a property basis, and will be far more easily understood by the taxpaying public. By the application of the very principal an- nounced by this State Board of Equalization "that the net earnings determine the value of the property'' then the revenue, income or earnings, by whatever name it is called, furnishes the bas- is for land assessment, and the assessor levying the tax must recognize that all incomes, from every source, are subject to assessment, with no 85 discriminating features based upon the fine-spun theories of public service experts. All individ- uals who are compelled to respond to this "en- forced contribution" for supplying the Govern- ment revenues should be on a uniform basis, where the humblest taxpayer is on an equality with the privileged public service corporations. Under the present system the per capita tax in California for 1913 was $7.41, as against an av- erage of $3.80 for forty-nine States of this Union. Ohio, Indiana and Illinois, representing Middle West, average 2.59 Iowa, Minnesota, Nebraska and Kansas 2.65 West Virginia, No. and So. Carolina and Georgia _ 1 .76 Oklahoma : 1 .89 Texas 2.97 These statistics show the extravagance of our California legislators in this matter of taxation of the people, when compared with other States of the Union, where next to Nevada, California apparently leads as the worst tax-ridden State in the Union. If this excessive burden of taxation must be carried, then let it be equally! shared by the priv- 86 ileged public service corporations and by the gen- eral public, and when the confusing theories of a paid expert result in developing a system which exempts special classes from assuming their eq- uitable share of these enforred contributions which are thereby added to the burdens of the other classes by force of law, is a rank injustice to the taxpaing classes. In this way the present system of collecting these enforced contributions for the support of the Government is a practical hold-up of the taxpaying public by the public util- ity and public service corporations, A variable and irrational system for enforc- ing these collections is an open door to inequal- ities and favoritism which necessarily create sus- picion and distrust of public officials in the dis- picion and distrust of public officers in the dis- charge of their official duties, and this condition is used as a justification for the evasions prac- tised in making up the assessment roll, which evasions are prompted by a false reasoning that a disproportionate, compulsory contribution for public expenses, exacted by force of an unjust law, justifies such evasions in self defense, there- by transforming the willing taxpayer into the artful tax-dodger, reasoning that both the Lord and the law help only those who help themselves, consequently the end justifies the means em- ployed. Under such conditions the double per capita tax rate of the ad valorem taxpayers of Califor- niathose who pay taxes is readily accounted for, and since these conditions will continue to exist as long as the creative cause remains, the remedy lies only in the adoption of a definite and uniform basis of taxation for equalizing these various enforced contributions among the sev- eral contributors, and in this, either system is preferable to a dual system which incites jeal- ousy on the one 1 hand and offers a reward to de- signing manipulators of large interests on the other hand in its desire to shift its burden upon others. In this complex system now in force for col- lecting Government revenues the majority of the should-be-taxpayers, who ought to share in these contributions for Government revenue, are omit- ted, and this omission proportionally increases the per capita tax of such as are embraced under the law. INCREASING THE ASSESSMENT ROLL To secure this result a system should be adopt- ed which would embrace all who should contrib- ute to the support of the Government, ail ol law- lawful age who are under Government protec- tion and enjoying the benefits resulting from the Government, each contributing his or her pro- portionate share. A suggestion upon this plan will follow later. Next in importance to the plan for the equit- able adjustment of these contributions from the various contributors is the faithful co-operation of the officials charged with the collection of these enforced contributions, and to whom much of this inequality may be traced at the present time, either by indifference to duty or by under- valuations in the primary assessment of property. In California, the custom of assessments at 60 per cent has superseded the law, which declares that assessments must be the actual value of the property assessed. With the law once set aside for general assessments, then under-valuations where personal obligations or favoritism exists would naturally follow through the same disre- gard of law ; hence law without efficient enforce- ment is as useless and valueless as the executive official would be without any law to enforce. Both are equally important; therefore consider- ation will be given to each. UNIFORMITY IN ASSESSMENT OF ALL CLASES Since the Government is that form of funda- mental rules and principles by which each indi- vidual member of the body politic are to regulate their social action, it naturally follows that such individual members must also share in the bur- dens and responsibilities as well as in the benefits resulting therefrom, and as all classes are equally dependent, so each class should assume its pro- portianate share in its maintainance ; laborers, mechanics, manufacturers, professional men, bankers, brokers, and salaried men of all classes who enjoy the benefits resulting from Govern- ment, should contribute to the maintenance of that Government in proportion to their respect- ive interests or incomes. While primarily land Avas the principal re- source for Government revenues, the passing out of the many small holdings by land owners who worked their own lands, which were later merged into large holdings and were farmed by land bar- ons upon a commercial basis, together with the industrial change from an agricultural to prac- tically a manufacturing nation, with its added army of salaried employees, have so materially changed the primary conditions that the changed conditions demand a re-adjustment to conform 90 to modern environments. Since the owners of the cultivated lands in the United States according to the U. S. census re- ports of 1912 were less than six per cent of the population, the assessment of land owners em- braces a small per cent of the population even when the speculating land owners are included, while the main body of the population, those re- ceiving incomes, earnings or salaries which com- pare favorably with the returns of the land own- er, having little or no visible property, not ex- empt from taxation, escape the assessment levied for the support of the school which educates their children, the courts to which they look for the protection of their personal rights and all other benefits derived from the various branches of the Government. To equalize this burden of enforced contribu- tions to support the Government, it must neces- sari ! y be extended to all classes benefited by its various branches, educational, judicial, commer- cial or industrial, hence a tax levied upon in- comes, revenues or earnings, whether obtained by the labor of the agriculturalist from the land or by the hand of the mechanic in the shop, or the salesman behind the counter or the bookkeeper at the desk, or the professional man by the effort of the brain, or the Government official from his salary, all represent incomes, which when acquir- ed- carry no ear-marks to distinguish either the source or means employed in securing the same, or to direct its future use for its possessor, it ful- fills the same purpose to each of its possessors, ministering to ones needs and wants and neces- sities, from the humblest laborer to the highest official, and are equally under the protecting care of the Government, which is an equal neces- sity to its enjoyment by all, then why should not each contribute his or her individual share for the maintainance of the Government which extends its benefits to all? INCOME BASE FOR LAND VALUES The artificial distinction which has been recog- nized between lands and incomes derived from other sources has coused an unnecessary and un- warranted discrimination which has complicated the tax problem and mystified the law-makers, and in this fog of complication and mystification, the privileged classes have eluded equity and es- caped their proportionate share of taxation by the injection of a special system of assessment in California and by a system of under valuation ev- erywhere, both these plans are a subterfuge for securing special rates for special classes. 92 The proceeds of labor and land, as well as the proceeds of labor in the shop is income to the producer; the compensation 'of the artisan as well as the fee of the professional man for the effort of the brain is income; the salary of the office man or Government official is income, and each and all these incomes when once acquired carry no ear-marks to distinguish the source from which they were derived, nor the instrumen- tality employed in its acquirement, all are on one common level, and all are directed to one common end, namely, to supply its possessor with the necessary means of existance and comforts, as well as the luxuries of life and in the enjoyment of this each individual is entitled to equal privi- leges in every public institution maintained by the Government. Equal participation in" the benefits conferred by the Government, demand an equal participa- tion in the support of that same Government. On what principal of justice should a small minority of land-owners carry the burden of this large majority who enjoy equal favors from the Government? The establishment of a uniform and equitable system of taxation could be accomplished by as- 93 sessing lands upon the basis of the income or revenue in the same manner as the State Board secured its valuation of the public service cor- poration property, determining its value by the earnings therefrom, and this with a correspond- ing income-tax applied to all other classes, wheth- er obtained from the land, the shop or the office, is immaterial, and the principle of equity in the dis- tribution of this burden among all the benefici- aries is a sound basis to build upon, the details to be worked out to conform to whatever condi- tions may arise in its application. In making this assessment upon land, no dis- tinction should be made between producing and non-producing agricultural lands, the assessment being based upon the average income of produc- ing lands of this class in the neighborood, and thereby compell the speculating owners of the 741,832,058 acres of uncultivated lands, being held for higher prices to be created by com- munity labor, to contribute their share for sup- porting the Government as well as for the in- crease of the value of their own lands, lying in unproductive idleness. With an equable tax upon this 741,832,058 acres of non-producng land to share this burden of taxation equally with the owners of the 487,- 94 451 acres of cultivated lands, together with the taxable incomes from all other income classes, then the land owners who work their own lands would have more inducement to live and labor for themselves, their families and the community, and when these artificial environments which cre- ate such unequal burdens are swept away, and every class bears its proportionate share of the public burden, then "tariff for revenues'' with privelege, its sponsor, will disappear as a worn- out relict of ancient feudalism. In this assessment of lands upon an income basis, a classification would be necessary as ag- ricultural, mining, oil lands and building sites, would be assessed according to the rules regu- lating the values of each class in the commercial market. > This income tax upon lands should be in lieu of all other taxes for the improvements, or op- erating property used in producing the income therefrom. PLANS SUGGESTED FOR TAXATION Under the present system of taxation, the amount as well as the source from which the rev- enues are derived, depends largely upon the offi- cial leveying the assessment, a demonstration of 95 which was furnished by one of the middle states, where a three million dollar assessment was made upon a ten million dollar property, as hereinafter described. A petition to increase the assessment to sixty per cent of its true value, as required by law re- fused by the State Auditing Board, an appeal to the State Board of Equalization of which the Governor was ex-officio a member, was also re- jected, and a subsequent appeal to the Supreme Court of the State, where it was followed by the railroad lobby opposing every effort, also met with failure and the assessment upon a ten million dollar property was maintained at a three million dollar assessment by the assessor. This illustrates conditions existing in every state, and when the power of the people is vested in a single person, who is beyond the immediate control of the people, then privilege exercises its power without restraint. Nothing is so effective for securing the fidelity of an official as to make him personally responsi- ble for his official acts in a pecuniary as well as a moral sence and this is especially desirable in the administration of the tax assessor's office, in which employment he deals with men whose con- science regarding taxation is more pliable and elastic than in the ordinary business transactions 96 of the day, hence it requires more stringent safe- guards to maintain a faithful and unbiased ad- ministration than in private life, and especially when subjected to the obligations and demands of privilege who placed them in office. To aid in accomplishing this, there might be added to the law requiring an assessment at the true value, an additional provision which would confiscate by the State, that portion of the owners property which was in excess of his sworn state- ment to the assessor, as well as all unreported property, all of which would escheat to the State the same as the estate of a decedent who leaves an estate without heirs to inherit. To this add the further provision, making the assessor and his bondsmen liable for the differ- ence between the assessed and the true value less a ten per cent margin. How To DETERMINE THE TRUE VALUE Since the courts are the power utilized by priv- ilege to delay, if not to defeat justice, where val- ues might be in dispute, let three, men selected from the neighborhood be chosen, one by the property owner, another by the state, and these two to select the third, who will constitute a board of arbitration to determine the value of 97 the assessable property, a majority vote from which no appeal can be taken, to be accepted by both parties as the true value at which it is to be assessed, thus avoiding the long and expens- ive subterfuges resorted to by ingenious and art- ful tax-dodgers and corporations. The advantage of a new arbitration board for each case would be two-fold: first, referees thus selected would be more familiar with local values than a court at a distance; second, where privilege would interfere Jt encounters three new subjects in every case, where under ordinary judicial systems its lobbying influence is concen- trated in one spot for all cases which may arise in the judicial district. In other words organized forces are more efficient when concentrated than when scattered. While these suggestions are not intended as specific, yet something along these lines would not only secure a fuller treasury but would es- tablish a more equitable division of the burden of taxation, while safeguarding the interests of the people as well as furnish a protection to the as- sessor from the insidious and powerful influences of privilege and its lobby. THIS BOOK IS DUE ON THE LAST DATE STAMPED BELOW AN INITIAL FINE OF 25 CENTS WILL BE ASSESSED FOR FAILURE TO RETURN THIS BOOK ON THE DATE DUE. THE PENALTY WILL INCREASE TO SO CENTS ON THE FOURTH DAY AND TO $1.OO ON THE SEVENTH DAY OVERDUE. APR 12 1947 12575 THE UNIVERSITY OF CALIFORNIA LIBRARY