fore you decide that nowhere and under no circumstances can the income tax be of service in the reform of the general property tax. The supreme desiderata in American taxation are the abolition of the tax on personal property and the improvement of the assessment work. These ends must doubtless be pursued differently in different parts of the United States. The method of attack suitable to New York City and the Atlantic seaboard is not likely to be the best method of attack in Wisconsin and the "insurgent" states of the Middle West. But in some of these states the ends which we seek are not unlikely to be accomplished through the instrumentality of the income tax. The tax is popular, the people want it, and to get it—if they are intelligently guided-they will sanction the administrative changes necessary

to make it a success. It satisfies their ethical instincts and arouses their interest, when such projects as the single tax, the habitation tax, and the graded property tax leave them hostile or wholly indifferent.

American economists should not stand in the way of experiment with substitutes for the personal property tax, even the income tax. The present situation is so bad that we have everything to gain and nothing to lose by experimentation. According to an investigation made by the Wisconsin Tax Commission in a typical Wisconsin county, the intangible personalty of estates passing through the probate courts was assessed at only 3.31 per cent of its true value, and I see no reason to believe that intangible personalty is better assessed in the average American county. Surely the income tax could not result in such an utter failure. In fact, it is probable that the assessment of incomes could be made even more satisfactorily than the assessment of real property at the present time. Few of the economists who hold real estate taxation up as the successful remnant of the American property tax realize how far from perfect the assessment of real estate now is. The Wisconsin Tax Commission conducts regular, systematic, and thorough investigations into the relation between the assessed and the true value of real estate in Wisconsin. From the data collected by the Commission, the following figures for a representative county, a representative but small city, and for nearly all the assessment districts of the state, indicate how irregular and uneven the assessment of real estate is in a state which is above rather than below the average in the character of its assessment work.

RATIO OF ASSESSED TO TRUE VALUE OF REAL ESTATE IN WISCONSIN BY CLASSIFIED GROUPS.5

As was stated in the beginning, this paper is not primarily a defense of the income tax, but a plea to the economists of this country to pause and think once more of the possibilities of the local income tax before declaring flatly that its introduction would be unwise. It is possible that some may agree with me that under the conditions laid down in this paper a local income tax might be made to work. To such persons in particular it may be predicted with confidence that within a comparatively short time these conditions will be possible of fulfillment in some parts of this country. In many sections the people are nearly ready to abandon the tax on intangible personalty provided a substitute can be found which satisfies their sense of justice. The income tax does this. In some of these sections central tax commissions are already in existence empowered to make the assessment on certain forms of business enterprises, to investigate and correct defective assessments locally made, to remove inefficient assessors, and, in at least one state, to appoint assessors from the beginning and rigidly supervise their work. Are we to say to such states that a local income tax would be a

"I am indebted to Mr. A. E. James, the Statistician of the Wisconsin Tax Commission, for these figures. The figures for the assessment districts are for the year 1905, those for the typical county for 1908, and for the small city for 1905 and 1906.

mistake and an absurdity? In the state of Wisconsin—which in its primary election law, its civil service requirements, its central tax commission, and its laws regulating railways and public utilities, has set a striking example of progressive legislation made sane and practicable—the people have by popular vote ratified a constitutional amendment permitting the introduction of an income tax and practically every party in the state has pledged itself to the introduction of such a tax. Here is a condition and not a hypothesis confronting us. What have the American economists to say to the people of Wisconsin?

THE EXTENT AND THE SIGNIFICANCE OF THE UN

EARNED INCREMENT

H. J. DAVENPORT

It is important at the very threshold of this discussion to make clear that, in a competitive economic order, private gain has no necessary reference to social service, and private capital no necessary relation to social productivity. Here, indeed, as often elsewhere in doctrinal analysis and in practical applications, right thinking upon the capital concept is fundamental to all the superstructure of theory and of practice.

The truth is that the essential nature of capital is not to be found in its significance as a factor of production in any technological or mechanical or industrial sense. It is not a category of machines and tools and appliances. Instrumental goods are capital truly, because, by virtue of their industrial function, they are gain-rendering to their owner-but they are capital solely by this title of gainfulness. That is to say, capital in the competitive business sense includes capital goods-instrumental goods or raw materials for production-but includes indefinitely more. These items of industrial equipment, these industrial appliances, are capital by the sole measure of their rendering a price gain. Price gain, pecuniary income, furnishes the test of capital quality and the degree and measure of it. Weight-and-tale productivity has no significance in the case excepting as an intermediate step to pecuniary return. And, in truth, even the most rigid adherents of the doctrine which confines capital to intermediate production goods, include the ice in the ice house waiting for summer, cider aging to vinegar, wine acquiring bouquet and flavor: the price significance is growing with passing time. So, somehow, the merchant's stock of goods is commonly admitted to be capital, although not as a factor of production in any industrial or technological sense, but seemingly only as gain rendering to the owner. Capital is merely property controlling gain in time.

The truth is that the concept of that sort of productivity which underlies not merely interest, but wages and rent and profit, requires radical reconstruction. The term productivity is, in truth, unfortunate for the purpose. In a régime of competitive activity for private gain, private gainfulness is the only meaning that the term productivity can possibly bear-unless, indeed, the

thought passes over from an objective study of the phenomena to ethical appraisals. But surely the science of economics is not to be reconstructed with every change of opinion with regard to the social worth of an institution, or with regard to the ethical or dietetic merit of certain lines of consumption. There is not one economic doctrine for the German and a second for the prohibitionist, or one for the Yankee pie eater and another for the Mediterranean wine drinker. Economic theory does not follow styles in bonnets, or canons of artistic merit, or directions of religious enthusiasm.

That private acquisition rather than social service is at the heart of the productivity concept is readily made clear. For precisely as economic utility has no reference to piety or health or welfare but only to desire, so wealth includes all permanent products that, attracting desire, take on price. Cigarettes, whiskey, Peruna, hop bitters, mince pies, cavair, ribbons, watch fobs, and corsets, all are wealth. They are marketable at a price. It does not matter that each or all of these lines of consumption may be either extravagant or immoral or indigestible.

It therefore follows that all the agents and instruments employed in furnishing the things that bear a price are productive— teachers, preachers, actors, corset makers, corset factories, poison factories, prostitutes.

And not only is it true that the test of economic productivity is neither in the materiality of the product nor in the commendability of the contribution to the general store of salable goods; it is also true that there need be no product at all from the point of view of any social accountancy. Burglars' jimmies, sandbags, roulette tables, counterfeiting outfits, all are capital-not however in any technological aspect as mere tools or appliances or implements, but ultimately solely as an individual holding of property for individual gain.

And if burglars' tools are productive, so also is the burglar or highway robber. If the lawyer who wins cases that should not be won is a producer earning his wage, so likewise is the beggar upon the corner an earner of his pittance. It is, indeed, not rare that an entrepreneur hires beggars or pickpockets at a wage. Their wage is the proof of their productivity. Similarly, also, with the relation of the madam to the inmates of the dive. Productive in the same sense and by the same test is the writing. of advertising misinformation, or the purveying of Town Topics