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income; he receives the power of control over the lives of a group of workers. The worker has come to feel a stinging sense of discouragement and injustice in the arrangement. He sees many people living on inherited fortunes without doing any genuinely useful work and he sees his own group working hard for a living which in comparison is rude and insecure. From the viewpoint of an outsider, the sense of injustice appears. well founded. This outside viewpoint is admirably stated by Bishop Charles Gore of Oxford, as follows:

“The success of civilization for us must be measured not by the amount and character of its products or material wealth, nor by the degree of well-being which it renders possible for a privileged class, but by the degree in which it enables all its members to feel that they have the chance of making the best of themselves, to feel that an adequate measure of free self-realization is granted them. On this ground then our civilization is open to the most serious indictment. . . . In our own civilization we find vast masses of men and women who cannot be reason. ably described as having any adequate measure of property for use. They cannot go into life with the security of free men. They cannot, within reasonable limits, control their own destiny. They cannot realize themselves."

Out of this situation arises in large measure the discontent of the common man. Gross inequalities of fortune are behind unrest And the labor movement, the reform movement, the progressive movement, all social movements, are in the nature of an attack upon the extreme inequalities which are perpetuated by the established system of inheritance. Persons who acquire fortunes by inheritance cannot offer the claim that their fortunes are due to their own superb abilities. These fortunes were earned by the abilities of a generation now dead. The democratic challenge in industry directly relates to these unearned and undemocratic inequalities of property. Inheritance as a part of the institution of property is on the defensive and has to seek grounds to justify itself. The principles of inheritance are in a stage of drastic transformation because of the social forces of the times.

This transformation is the more possible because inheritance is not established as an inherent and inalienable right of property. The preponderant judicial opinion makes inheritance a custom or tradition of economic society which can be modified and altered whenever social needs make new customs and traditions desirable.34

The war made so many new large property owners that the importance of the situation is greatly accentuated. It is estimated from income tax returns that the war added twelve to fifteen thousand new members to the millionaire class. Some of these accessions to the millionaire group were due to the rise of price levels which automatically enhanced the price measure of property without actually changing the amount of the property itself. The large fortunes, moreover, do not stand still. Through dividends, interest and rent they are steadily on

34 Fisher, American Economic Review, March, 1919, p. 12.

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the increase. The largest amount of saving is done by the largest property holders, and these savings mean more investments and more income. Their savings are large, not because their consumption is small, but because their income is extraordinary. The inequality thereby mounts higher and higher.

Whatever may be thought of the ability of the recipients of the largest fortunes, at least that ability is great enough to retain the fortunes. A recent estimate places the number of fortunes between $5,000,000 and $10,000,000 handed down during the present generation at five hundred.35 In the original building of the great fortune, a high degree of genius and unswerving energy is ordinarily the telling factor. Only the man of force of character and considerable shrewdness can start with little or no means and pull himself up to a position of wealth. But once the fortune is amassed, and handed down to a succeeding generation, it requires only an indifferent ability to hang onto it. As G. P. Watkins remarks, “Keeping riches once gained is easier than ever before. ... The rich by inheritance have a position which they can lose only by a destructive tendency amounting almost to madness.”' 36 The inheritor of a fortune who lacks the ability to manage the fortune, or who desires not to be bothered with the responsibility, can hire a trust company to give expert management of the property. So inequality begets greater inequality, and inheritance without severe restriction lies at the root of the situation.3

All of this is not to deny that a substantial amount of inheritance is desirable. It is beneficial to the recipient because it gives him a superior opportunity at the start of his career. It makes for the security of himself and his family. It is good for society that inheritance within limits should be preserved. The entire difficulty springs from immoderate bequests and the consequent excessive and dangerous inequalities. The social attack upon inheritance is not upon inheritance itself, but upon the undue concentration of it. The social movement seeks a wider distribution of inheritance, --more inheritance by the mass of people and less inheritance by the concentrated handful. As Taussig is careful to remind his readers, “Inheritance, in sum, is an indispensable part of the institution of property.” 38

The principles by which inheritance is to be placed under social control are chiefly psychological. First of all, the limitations on inheritance must be high enough to affect favorably the motives of the various parties concerned. The inheritance tax must be rigid enough so that the people receiving a bequest are not thrown on easy street nor given the feeling that they are freed from the necessity of making good in individual conomic service. As Ross warns, “Not that a son may not inherit enough of his father's wealth to live on, but that no one

35 H. H. Klein, Dynastic America and Those Who Own It. 36 Growth of Large Fortunes, p. 159. 37 Dalton, The Inequality of Incomes, p. 329. 38 Taussig, Economics, p. 251. See also Ely, Property and Contract, pp. 425-426, may inherit a fortune so large as to kill in him all incentive to work and to tempt him into an extravagance of expenditure and conduct which discourages or corrupts the useful members of society." 39 Inheritance taxation must then be severe enough to reduce those glaring inequalities which give the ordinary man a bitter sense of the hope Tessness of trying to get ahead. This

psychological necessity is clearly stated in one of Theodore Roosevelt's messages to Congress. He declared that the reduction of the gross contrasts of inherited wealth would “help to promote a measurable equality of opportunity for the people of the generations growing to manhood.” Inheritance taxation should also be measured by its effects on the men who have the ability to earn great fortunes by strenuous business endeavor. The man who makes a large fortune has the opportunity to use it in the form of public gifts and benefactions which enhance the prestige and public esteem of the donor. If the rich man realizes that unless he does make large public benefactions, his property will in Targe measure be taken by the State at his death, he is likely to prefer to make the benefactions. With the knowledge that the State will take a large share of the property which he does not give away before his death, the ordinary man of wealth would be induced to take to heart the claim of Andrew Carnegie that it is a crime for a man to die rich, and that the only human and decent procedure is to bestow one's fortune for useful social purposes during the owner's life. Millionaires might thus be inspired to give parks to cities, build art galleries or libraries, endow universities, establish foundations for scientific and medical research, provide hospitals, subsidize deserving philanthropic causes, etc.*' ( Inheritance taxation

40 should be so regulated as to stimulate fortune owners to give wisely ang generously for social purposes; encourage the recipients of inherited for

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. Secondly, the converse of this proposition is that the taxation should not be so great as to cause evil psychological effects. If too much of a fortune is taken by the State, men will be discouraged from wanting to make money. A certain amount of inheritance is useful as an inducement or reward for men to throw themselves strenuously into business endeavor. The prospect of handing property down to their children stimulates men to create a competence for themselves and their families. But beyond a certain point the family motive is displaced by other motives. Irving Fisher found that the business man's accumulating motives beyond a certain point “were rather those of power, of selfexpression, of hunting big game.' Inheritance taxation which stifled the basic impulses of men of great ability in business would defeat its own purposes.

The exact tax rates which strike this psychological balance are still a matter of political experiment. In forty-six States, inheritance taxes

39 Principles of Sociology, p. 385.
40 See Carnegie's, The Gospel of Wealth.

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of some sort existed in 1924, with rates ranging for direct heirs from 1 to 15 per cent and for collateral heirs from 3 to 40 per cent. The Federal Government in 1924 had an inheritance tax on estates running from 1 to 40 per cent. Most European countries have established substantial inheritance tax rates. The principle is accepted by most_advanced nations, and may be looked upon as established in its funda. mental implications.

Monopoly Privileges a Cause of Inequalities. Special privileges and monopoly advantages are abundant in the economic system. Illustrations would include avenues for anside information in stock specula tion,(secret knowledge of the sections of future city development as a clue to real estate investment, patent rights, franchises to railways and other public utilities, power to fix monopoly prices, favoritism in the granting of contracts, devices of unfair competition, superior possession or monopoly of raw materials and other resources, superior bargaining power with lesser companies or with labor, tax exemptions, trade-union influences, etc.41 Monopoly privileges may exist among labor groùps as well as among property groups, and often it occurs that a labor monopoly is matched in an economic struggle, quietly or openly, with property monopolies. In the general run of cases, these monopoly advantages tend to further the inequalities of ownership and income. ) This

analysis does not imply that monopoly advantages are indefensible. Most monopoly advantages contain elements of real service to society. In many cases, they are the creation of men of great genius and ability. A patent monopoly, for instance, often arises in this way. A monopoly advantage is not a sign that a man has fallen without effort into easy street. The men of towering ability create special privileges for their business undertakings where such privileges are necessary. There are good and bad monopoly advantages, and those which are the result of ability and those which are not. The bad privileges are almost invariably strong causes of inequalities of fortune, and the good privileges in no small measure work to the same end, although in the latter cases the inequalities are apt to be a reflection of ability that brought substantial public good.

John R. Commons gives evidence to indicate that about/ four-fifths of the millionaire fortunes have been derived from permanent monopoly privileges. The largest of these fortunes are thought to have benefited most by special privileges, for it is estimated that “perhaps 95 per cent of the total values represented by these millionaire fortunes is due to those investments classed as land values and natural monopolies and to competitive industries aided by such monopolies.'' 12 In the building of these fortunes, personal ability counted primarily, but personal ability consisted of the power to create and the genius to use monopoly advanfages. It is in this way that monopoly advantages foster inequalities of possessions.

41 See G. Myers's History of the Great American Fortunes. 42 The Distribution of Wealth, p. 252.

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A careful authority, J. W. Jenks, concludes a study of the winning of great fortunes by a summary which is substantially in line with these opinions. He says, “Let me emphasize again what I said before, that it is probably in and through the exercise of the principle of plunder or the undue exercise of advantage, of gambling or of its allied principle of monopoly, or of special privilege or favor of some kind that many, very many, if not most of the greatest fortunes have been won." 43

Unforeseen Chance as a Cause of Inequalities.—Luck, circumstance, an unexpected turn of events, accident, and fortuitous change all play an important part in the winning of large fortunes. “Two men earn equal amounts because they are of about equal ability and industry and work at the same trade; they save equal amounts, and invest with what good authorities would consider equal judgment, but the investment of the one turns out fortunate and that of the other unfortunate. The one becomes rich and the other remains poor." 44 Likewise, the variations in the price level affect deeply the value of investments and the purchasing power of fixed incomes. A dollar of permanent investment before the war would in post-war prices have a purchasing power of about sixty cents. With a shrinkage of the dollar in a period of inflation there goes a violent fluctuation in the value of all forms of property. A new railroad built through one section of a city increases the real estate values of the neighborhood, a new law passed by the legislature curbs or releases profit-making power, a costly strike or a poor wheat crop swings fortunes up or down as the case may be. Perhaps the greatest factor of chance is the profit system itself. (Profit is paid as a reward for risk) The business man takes his chances and in recompense receives a profit. The more risky the business presumably the higher the profit deserves to be the element of chance is in this way definitely incorporated in the property institution as an indispensable element, and one deserving of large rewards.

The greater the risk, the greater the rightful profit, and in consequence, the greater the inequality of wealth. Obviously if the risks and chances in business could be reasonably and substantially reduced, the inequalities of wealth might be reduced accordingly. It has been proposed that in important business undertakings the government might underwrite the venture, and by a form of public insurance, reduce unnecessary risks and chances. The government in certain ways has already taken steps in this direction. The Federal Reserve System has in a very far-reaching way reduced risks in the field of banking and credit. The Interstate Commerce Commission and federal legislation guaranteeing minimum returns to railroads have fundamentally modified the nature of risks in that branch of economic enterprise. Outside of government support, the principle of insurance has been extended over one risk after another in business undertakings. Fire, accident, health, and executive or managerial insurance,—these represent a steady

43 Great Fortunes, The Winning and Using, p. 41. 44 Cannan's Wealth, p. 187.

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