# Popular Science Monthly/Volume 53/August 1898/Principles of Taxation: What Should Be Taxed, and How it Should Be Taxed XXIX

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APPLETONS’
POPULAR SCIENCE
MONTHLY.
AUGUST, 1898.
* PRINCIPLES OF TAXATION.
By DAVID A. WELLS, LL. D., D. C. L.,
CORRESPONDANT DE L'INSTITUT DE FRANCE, ETC.
XIX.—WHAT SHOULD BE TAXED, AND HOW IT SHOULD BE TAXED.
SOME years since (1873) a citizen of Tennessee, Mr. Enoch Ensley, making no pretense of scholastic learning or private interests, but earnestly desiring the material development of his section of the country (Tennessee), and that it should not be retarded by the adoption of an unsound system of State or municipal taxation, published in the form of a letter addressed to the Governor of the State a little pamphlet entitled What should be Taxed, and How it should be Taxed, which set forth certain fundamental propositions in respect to local taxation, and supported them with such homely and clear illustrations as to entitle the essay to a permanent place in economic and legal literature.
Mr. Ensley commences by proposing the following rule or maxim as the basis for a State (Tennessee), city, or county system of taxation:
"Never tax anything that would be or value to your State, that could and would run away, or that could and would come to you."
Mr. Ensley then lays down the proposition that property naturally divides itself into two classes—movable and immovable; that the former, as its name implies, can be moved from one place to another as its owner chooses, while the latter is fixed and can not budge an inch, no matter what its owner chooses, "I hold it to be true that immovable property has no value till it is occupied or ​located upon, or brought to subsist or employ, movable property; and, as a rule, the more it employs or subsists, the more valuable it becomes; and the greater the inducements or attractions it offers movable property, the more it will have to locate upon it"; citing in proof and illustration the fact that the best acre of land in America is worth nothing till man goes upon it with his axe, horse, cow, etc., and puts it in cultivation and brings it to subsist himself, horse, cow, etc.; and from that moment it commences to have a value, by reason of the fact that it employs or subsists the man (who, if he can be called property at all, is certainly movable property) as well as the horse, cow, etc. And if this acre of ground for any cause should become attractive to and employ double the amount of movable property, it will as a general rule become doubly valuable; and so on, if it should become attractive to and employ profitably ten or a hundred or a thousand fold more movable property, it would become in like ratio more valuable, even up to the value of millions of dollars per acre, by reason of the fact that it offers attractions, and has employed upon it profitably five, ten, or fifteen millions of dollars' worth of movable property. Of course, when ground gets beyond a certain value it must be put to other uses than agriculture, and just this process acres of ground have doubtless passed through since the Dutch first landed on Manhattan Island.
There are exceptions to this rule—that immovable property is valuable as it has movable property employed directly on it—for it frequently has a greater value than movable property employed directly on it would warrant. It has a value reflected from the employment of movable property employed on immovable property near by, as in the case of residences in or near cities. For instance, the use of movable property on a Broadway lot gives a great value to the merchant's residence up town, by reason of the fact that it is sufficiently near and convenient for it to be in demand for the transaction of business daily at his store, all of which is attributable to the employment of movable property at the store.
The thrift or profit which immovable property offers to movable property helps to regulate its value. For instance, a man owns two pieces of property alike, say in different towns, rented out to merchants of equal capital; one is enabled to make seven per cent per annum only on his capital, for the reason that he has to pay three per cent tax on his capital, and the other makes ten per cent net, and pays no tax. The property paying ten per cent will be the most valuable, for it will pay the largest rent, because there will be more applicants for it than for the seven per cent; and the law of supply and demand governing, it must rent for more. It is, however, impossible, as a general thing, for these two merchants to remain of ​equal capital. The ten-per-cent man will soon have more capital, from his extra thrift; and the seven-per-cent man, seeing his prosperity, is apt to pull up stakes and quit his town, and move to the ten-per-cent town; and other merchants will perhaps do the same thing, until, by competition increasing in the one town by other merchants coming in, and decreasing in the other by their going out, profits may be made the same. This, however, is not apt to make profits the same in a country like ours, for there is generally new trade to be looked up to keep pace with the newcomers. So the result would be that the newcomers would continue to go to the ten per-cent town from the seven-per-cent town and other places, till the one becomes a large and prosperous city, and the other a dilapidated, languishing town. It will be easy then to say which storehouse is the most valuable.
In this there is little of novelty; but in the homely, clear illustrations which Mr. Ensley employed for impressing his fellow-citizens with the truth of his propositions, novelty is not wanting. Thus, for example, he says:
"I hold that, of all men, the real estate, or fixed property man, is most interested in the rule or motto I have adopted. To illustrate, I will say that there is an acre of ground in the city of Memphis, Tennessee, say in front of the Overton Block, that is worth at the rate of two hundred thousand dollars per acre, while the writer has an acre six miles below the city, quite as good naturally, and even better than the Overton Block acre, because it will produce more corn, cotton, pumpkins, peas, potatoes, cabbage, etc., than the Overton acre will, or ever would, and my acre is not worth one hundred dollars per acre. Now why is it that the Overton acre is worth two hundred thousand dollars per acre, and mine not worth one hundred dollars? The reason is that there is employed on the Overton acre, profitably, two, three, four, or five hundred thousand dollars of movable property, while upon mine there is employed the sixteenth part of a negro, the sixteenth part of a mule, plow, hoe, etc. now, if you will manage in any way, either by taxation or otherwise, to drive from this Overton acre the two, three, four, or five hundred thousand dollars, and affect the Overton acre so that this capital, or any part of it, can not be employed on it with a profit, it will not be worth more than my acre—in fact, not so much, for there is nothing so valueless as ground covered with houses, when there is no demand for said houses. And, further, if you do anything to make the two, three, four, or five hundred thousand dollars pay less profit, you will damage the ground, or lessen its value, more rapidly than you will decrease the profits—not in the same ratio, but more rapidly. Suppose, for instance, the profit has been ten per cent net on the ​capital employed, and the property is paying a rental on three hundred thousand dollars; if you reduce the profits permanently, in any way, to five per cent net, the property would not pay a rental on one hundred and fifty thousand; in fact, it would hardly pay any rent at all, for five per cent would be too small to induce a business at all in this country."
"Movable property always seeks and locates on immovable property where it thrives and multiplies most rapidly. A spot of ground, a city, a county, a State, or even a nation, that offers the greatest thrift, will be sought and located upon by the greatest quantity of it, and the greater the quantity the more value and thrift will the land have. Any tax levied upon it lessens its thrift, and consequently is in violation of the correct principle; though it may not be enough to perceptibly affect it, yet it will have some effect. Though it may not drive any away, yet it will, to some extent, keep other movable property from coming."
"It is said that it was the last feather that broke the camel's back, while the first had as much to do with it as the last. An oppressive tax, such as exists in some parts of our State, drives off a good deal of movable property, and absolutely forbids any more coming to such parts, unless it comes relying upon dodging or evading the law, which large capital never does. Men of small amounts of money, goods, etc., such as one can hide, may come; but men of large amounts of money, to go into open banking, or merchandising, on a scale that can not be hidden, or evade the law, will not come.
"Here I wish to state a truism which, perhaps, many owners of real estate may never have thought of. It is this, to wit: The renter or lessee of real estate must always prosper before the owner of the real estate can expect to prosper. This is certainly true as a rule, when taken for a series of years, in a country like ours, where land is abundant, and the people free to go where they please. This will apply to all real estate, whether farms, storehouses, shops, or other kinds of realty. I don't mean he must have greater prosperity, but that he must prosper first."
"Of course, all mankind, where they have lived for a time, form local and social ties, and will submit to some oppression, though their property be all movable, before they get their consent to move away; but with the millions of dollars of movable property we desire to attract to us, no such ties exist; and if we do not offer quite as much thrift as other localities, and even more, when the property may be already located, we need not expect to attract it to us. But it is just as certain as that the law of gravity will cause the apple to fall toward the earth when it leaves the tree instead of toward the ​sky; or as that water will run down an incline, if we (in Tennessee) do offer greater attractions than other localities we will attract it toward us, and the quantity and the rapidity with which it will come, can and will be measured by the amount of thrift that is offered. It is about as important to induce a man, with a given amount of capital, to come to us, as to retain one we already have in our midst, with the same amount." We can not expect to develop a State or build up large cities rapidly from their present population in their natural increase, but must invite others, with their capital, to come and settle among us.
"As I have said, any tax levied upon movable property lessens its thrift, and tends to drive and keep it away; consequently, it is incorrect in principle, while a heavy and oppressive tax is absolutely prohibitive and suicidal. Embraced in the rule I have presented in the beginning, never to tax anything that would be of value to your State, that could and would run away, or that could and would come to you, are two or three kinds of movable property which I regard as most important, and which I will mention—to wit, money, merchandise, and capital to be used in manufacturing. These pertain to cities mostly. There are many other kinds of property which, perhaps, would come under the rule, but for the present I will speak of these three, because through them great wealth generally enters the State.
"And here I desire to call your attention to the fact that the great bulk of the movable property generally enters a State or nation through its cities and towns—money and merchandise or trade always, and capital for manufacturing purposes most frequently; and from the cities and towns its beneficial effect is radiated throughout the State far and near, greater the nearer the city, but beneficial, to some extent, even to the utmost bounds of the State, particularly when we owe a common debt, as most of the States of the American Union do, and as our State of Tennessee certainly does, to the extent of over twenty million dollars. And here I wish to note the fact that there exists in Tennessee, in the minds of some of our farmers, or people living in the country, a prejudice against the cities. They imagine that the interest or prosperity of the cities is entirely separate from theirs, if not antagonistic; and again, the people of one part of our State imagine their interest to be separate from other parts of the State, which is incorrect in toto. This idea or feeling has, to a great extent, been manufactured by demagogues or ignorant politicians, and by newspapers actuated by incorrect motives or ignorance of the correct relations between cities and country, and the different parts of the State. This is all wrong, and the sooner the people turn a deaf ear to all such, the better it will be for all ​parties. There is no antagonism of interest between them; but, on the contrary, a unity of interest. For a city to grow large, rich, and prosperous within the borders of a State that owes a debt to be paid by all parts of the State in proportion to the wealth of the respective parts, of course can not be against the interest of any part of the State or country; and vice versa, for the country to become rich and prosperous, it can not well hurt the cities; for East Tennessee to flourish, can not hurt Middle and West Tennessee, and so on. But, on the contrary, the prosperity of one is, and must be, advantageous to the other, not only so far as paying the common debt is concerned, but in divers other ways, such as the country patronizing the trade and manufactories of the cities, etc., and the cities, in return, buying what they may consume of country products from the country, and offering a near and convenient market for many of their products that can not be shipped to more distant markets, besides shedding or radiating an increased value on their lands in every direction, for miles and miles. To attempt to enumerate the various reciprocal advantages is useless, for the mind once directed to the subject, they become apparent by the scores.
"And here I desire to call the attention of the farmer or countryman to a fact that many have never thought of, which may tend to abate their hostility toward the cities. It is this, to wit: While it is impossible for a rich and prosperous farming country to surround a city without contributing to the prosperity of said city, yet it is possible for a city to be located within the borders of a State and grow to be rich, prosperous, and large, and to add great value to the lands around and to the State, without receiving a corresponding value from the country of said State. In fact, such is always the case where the city is large. Tor instance, the great city of New York is not indebted to the country or farm lands of New York for one hundredth of her prosperity and wealth. She reaps her wealth not only from all the States of the Union, but from all the civilized parts of the world; yet she don't contribute a dollar to the payment of current expenses and State debt of any State in the Union, or any part of the world, except the State of New York. She gives in her immense wealth to be taxed solely for the State of New York, thereby relieving each and every farmer in the State. St. Louis reaps a majority of her prosperity from other States than Missouri. New Orleans reaps four fifths of her prosperity from other States than Louisiana, and of Memphis it can be said, she has reaped of whatever wealth and prosperity she has, from a half to two thirds of it from Arkansas, Mississippi, southern Missouri, and southern Kentucky; yet she does not contribute a dollar directly to the payment of current expenses or State debt of any of these States, but it is ​all taxed to supply the wants of the State of Tennessee alone. Nashville is similarly situated, to some extent, and perhaps Knoxville and Chattanooga, just to the extent that they may have prosperous trade beyond the State. Hence it will be seen that the farmers or country people should not be prejudiced against the cities located within their State, for they receive more aid from them than they give in return, and are consequently the gainers. So the practical operation of large cities seems to be to receive trade, and become rich out of it, from other States more than their own, and allow their own State alone to receive the full benefit, as far as her demands go. This, it strikes me, should not be objectionable to the farmer or countryman, or to the State or any part of the State. Consequently, by no means should they desire any law, of any kind, to exist in the land, whereby the cities are oppressed and kept from growing, when, by its repeal or modification, they would not be harmed a particle, but, on the contrary, be benefited.
"To undertake to enforce a very oppressive tax on money is ridiculous nonsense. It is impossible. The Maker of all things has forbidden it, in giving to all things their peculiar nature. He has forbidden an oppressive tax on money, by giving it such an easy mobility that it can go, in a fortnight, from Tennessee almost to the uttermost parts of the world. And just so, to some extent, with other kinds of movable property. It would be about as wise for the Legislature to pass a law enacting that, from and after this date, the great bulk of the water of the Mississippi River shall flow toward Cairo instead of toward New Orleans, as to enact that the great bulk of the money of Memphis shall pay four and a half per cent tax per annum. It is wise in man to deal with things as they are, and will be in spite of him, and not as he may think they should be. Don't kick against the pricks!
"Suppose that some city or town found it necessary, in order to pay current expenses, interest on debts, etc., to levy a tax of ten or fifteen per cent on all kinds of property, real, personal, and mixed, and that it was rigidly enforced. Does any one suppose that there would be any movable property there in twelve months to collect the tax from? No, sir; you would hardly be able to find a pocket handkerchief or a pound of coffee in either of these cities. But all the real estate, houses, etc., would be there still, but without tenants, and consequently, on account of the high tax and want of occupants, worth nothing. Suppose, again, it was possible to adopt a process to make the real estate worth something, could it be done by running the occupants off and receiving no rent whatever from it? No; it could only be done by adopting a process which would fill all of your houses with tenants, and secure to you a rental from them; and that ​could only be done by allowing movable property to thrive, and by attracting a sufficient amount of it to you to occupy additional ground, and to pay additional rental until your rental would be more than the tax.
"I find, in submitting my views to intelligent men, that at first they oppose me, and invariably say it is right and just for all kinds of property to be taxed alike; they all receive protection from the laws alike, and of course they ought to pay alike. Now, this would do very well, and be good reasoning, if we had a Chinese wall around a State; a wall that man could not scale to go out or come in, and no railroad could go under, through, or over; and then I would favor the tax of everything, for then it would all be fixed property; it couldn't run away or come to you; but until that kind of arrangement is made I am not in favor of it."
Commenting on a rate of tax of three per cent imposed on all property by various cities of the Southern States (at the time of his writing, 1873), Mr. Ensley points out as one result of such a policy that it offered "inducements to banks to carry on business with small capitals, and rely upon deposits for their capital; in other words, to undertake to do banking business without capital. A bank with five hundred thousand dollars capital pays fifteen thousand dollars to State, county, and city, being five times as much as a bank with one hundred thousand dollars capital, when the bank with five hundred thousand dollars capital does the State, county, and city, otherwise, five times as much good in the shape of assisting trade, manufactures, and developing the various industries."
Commenting also upon the tax rate of four and a half per cent imposed at that time in the city of Memphis, Mr. Ensley further adds: "If you will levy, enforce, and collect such a tax on the money, trade, etc., of the great city of New York, and charge no tax in Boston, Philadelphia, or Baltimore, I will guarantee to transfer, in a short time, hundreds of millions of the trade, money, etc., of New York to those cities; and, if she will continue it five or ten years, I will guarantee to show you, in either of these cities, more trade, more money, and more people than in New York. I will guarantee to depopulate her more effectually and more permanently than a plague ever did a city, and impoverish her more effectually than ever a war did. Yes, I will hurt her infinitely worse than a fire, that might burn every house from Castle Garden, from river to river, to Central Park. I will make it entirely safe for women and children to cross Broadway at City Park, Astor House, Wall Street, or elsewhere, without the protection of policemen. I will reduce the value of the real estate of Mr. Astor from one hundred million dollars (it is said to be worth one hundred million dollars) to twenty-five million ​dollars or ten million dollars, and perhaps even less, and the estate of every real estate or immovable property holder in the same ratio; but I can not say that I will greatly injure the movable property man, for he may go to Boston, Philadelphia, or Baltimore, and do quite as well as he did in New York city with his money, goods, etc. The truth is, it would entirely bankrupt the great city, for the demand for immovable property would not be sufficient to pay a rental sufficient to pay the interest on her city, county, and State debt. I do not think these assertions on the extreme, or the picture overdrawn. And if the picture is not overdrawn, and even say it is overdrawn by fifty per cent, who would be the injured party in New York by the enforcement of such a law? Would it be the great merchants who, for aught I know, rent their houses from Mr. Astor? Or would it be Mr. Astor, the great real estate owner of Iew York? In other words, would it be the movable property man, with his goods, money, etc., who can take it and go to Boston, Philadelphia, or elsewhere, and perhaps do quite as good a business as he did in New York, or would it be the immovable property or real estate man, who has to stay where he is and pay his city and county debt, without tenants or rental from his property? Hence, I say that, of all the men who should object to oppressive and, to follow the principle, I will say any taxation at all on money, merchandise, or trade, manufactories, etc., it is the man who owns the real estate or immovable property. His position should be this: He should say to the thousands of men in the civilized world, with their money in their pockets, looking out a favorable locality to go to banking, merchandising, manufacturing, or farming, etc.: 'Come, locate on me; I will not oppress you; come to me, for I can't go to you, and we must come together, or I am worth nothing; and knowing this, I will not tax you and oppress you. Other localities make you pay a tax; I will not, consequently I offer that advantage over other localities.' Heretofore it has been the merchant who has done the complaining about the tax levied on him; he is not the one to do it; it is the real estate man, and the writer being one of those men owning real estate almost entirely, and not owning a dollar's worth of merchandise of any kind for sale, and not being a lender of money, but, on the contrary, a borrower, and not being a manufacturer of any kind, and not being the owner of machinery, except a steam sawmill and a steam cotton-gin establishment, but being what is known as a plain farmer or planter by profession or occupation, thinking he sees his interest in the system he is advocating; consequently therein is to be found the moving cause of this letter.
"I contend that this system will lighten the burdens of taxation on real estate, and, after a very short time, the rate of taxation will ​really be less. To illustrate further, I will say what I said to a prominent real estate owner in a conversation on this subject. He said to me: Do you say that such merchants or bankers shall make from ten to sixteen per cent on their capital, and pay no tax, and I make only six or eight per cent on the houses they are occupying, and pay all the tax? Yes, says I. You seek to tax them, and that is the reason you get no larger per cent on your property. Says I: If they make one hundred per cent per annum on their capital, you should not want them to pay a copper of tax. Why? Because if they made one hundred per cent per annum, next year you would have forty applicants for the house they are doing business in, and if you should, you would certainly get a full rent for it, more than the extra tax, and as only one of the forty could get the house, and the other thirty-nine would be unaccommodated, and if your tenants should be making this large per cent, it is reasonable to presume that they would be making it, or something near it, all over town; consequently there would be near the same number of applicants for every house in town; but as only the present tenants or their number could be accommodated with houses, the result would be that you would not only get exorbitant rents for all the houses in town, but you would have demand for the hundreds and thousands of vacant lots throughout the city to build storehouses on; they would either buy them or offer you such enormous rents as would induce you to build them houses on lots that you have been paying taxes on for years, and received no rental from. Soon there would be houses going up all over the city, block after block. The brickmaker would have more than he could do; the lumberman would have more orders than he could fill; the carpenter, bricklayer, stone mason, foundryman, and all descriptions of mechanics and laborers would have more than they could do, so that the builders would have to send elsewhere for mechanics, and they would come in by the thousands. All these newcomers in turn would want residences for their families; and thus would bring into demand and make pay a rental thousands of lots that have never paid anything, and you give active employment to all the mechanics you have, and besides bring thousands of others from other places.
"Let us go a little further, and see how it affects all and everybody in the city. These newcomers get their houses, and then they want furniture, and they patronize your furniture man; they want a carriage or wagon for family uses, and they patronize your carriage man; and then horses, and patronize the horsemen; and then the blacksmith to shoe them; and then the retail dry-goods houses, mantuamakers, milliners, grocery-men, butchers, vegetable market men, and, in short, every kind of retail establishment throughout the ​city, thereby giving vigor, life, and thrift to all; and thus it would go on until, before you would be aware of it, you would have a city of hundreds of thousands of people, and be worth and pay a rental on hundreds of millions of dollars. Of course, no general trade would pay one hundred per cent per annum, but I have adopted this rate to illustrate the principle.
"The system of nontaxation of certain kinds of movable property, which I am advocating as the correct system, while it is the best to be adopted in every State, yet it will not make a rich State out of every State, nor will it build up evry town to be a large city, by any means. Thus, for instance, its application to a naturally poor State could not induce movable property sufficient to go there to make it a very rich State; still, if there is any way possible to develop such a State, this is the one.
"It think I have shown beyond question that it is not in harmony with the interests of any one in any State to tax money, trade, manufactures, etc., and that, of all others, the owners of fixed or immovable property should demand that the present system be changed—that they should say: Don't adopt any system that has a tendency to drive movable property from me; but, on the contrary, adopt a system that will attract it—for we are worth nothing without it, and the movable property man may go elsewhere and do quite as well."
* SOME USES OF THE CAMERA IN ZOÖLOGY.
By R. W. SHUFELDT, M. D., C. M. Z. S.
PRACTICAL zoölogy in these days is realizing more and more the benefits it is receiving from the use of the photographic camera. These advantages are appreciated by naturalists, educators, and the reading public, and are seen to be advancing along a variety of lines; not the least important among these being the services accruing therefrom to the morphologist, the zoölogical artist and illustrator, and to the taxidermist. To the first named the assistance rendered by photography to his science has been some time •established, having a number of years ago been placed upon a practical working basis. Its most successful operations are seen in the photomicrographs produced at the hands of the skilled laborers in such fields. Osteology is another department wherein distinct gains have resulted from photography. Bones and skeletons of every species of vertebrate are now illustrated in a manner that for beauty, accuracy, and permanency of the work, defies any character of illustration heretofore known, not even excepting the best grade of