goods which are to be produced in the future, gives the key to the sound treatment of the wages of laborers hired for production. The first step in the process is the advance of money or purchasing power to laborers by their immediate employer. The next is the application of these funds to the purchase of commodities. If the commodities laborers can buy are fixed in quantity or in recurring supply, we have a rigid wages-fund: if not, an elastic one. If laborers do not spend their money wages at once, but save for the future, there is a clear field for their participating in the future results of present productive operations. If they spend at once, they buy, not the product of present labor, but the product of labor exerted almost entirely in the past. The money funds in the hands of those capitalists who employ laborers directly or indirectly are an essential part of the machinery by which distribution is effected in advanced industrial communities. But they are not a source of real wages, nor are the money incomes of consumers a real source, proximate or ultimate. Money and employer's funds and consumer's income are merely parts of the machinery by which real wages get into the hands of those who earn them. We must regard this machinery, and understand its working; but we must not confound a description of it, essential as it may be to the understanding of the situation, with an analysis of the fundamental facts. These are the lines on which, I venture to suggest, the treatment of the wages-fund doctrine will proceed when the present ferment in economic discussion shall have yielded its final residuum.

F. W. TAUSSIG.

THE NEW INCOME TAX.

By the tariff act of 1894 the United States government, for the second time in its existence, undertakes the levy of an income tax. The future student of our history will probably have a moment of mental embarrassment when he finds the provision for laying this novel burden upon the tax-payer in "an act to reduce taxation, to furnish revenue for the government, and for other purposes." His difficulty in comprehending the real significance of the measure will not be lessened when he attempts to trace the legislative history of the act. He will not find the explanation in any exigency of the Treasury, where the first-fruits of the tax cannot be received before July, 1895. He will not find it in the avowed policy or the unavowed political needs of either of the great parties, both of which found themselves deeply divided by the proposition for the tax. He will be likely to ascribe the easy acquiescence of a considerable section on each side in Congress to the presence of an ill-defined notion that the people are about to demand some drastic action for depleting the well-to-do classes, and to the habitual dread with which most politicians for a time listen to the demands of any new political movement, like that of the Populists. At any rate, it will be clear that the considerations which weighed with Congress in taking this important step were not fiscal, and that the provisions of the new act were not studied and perfected by its framers from this point of view. The very fact that the limit of exemption is set so high as $4,000 will be a standing demonstration that the measure was shaped to meet some supposed social or reformatory end, possibly with some sectional bearing, but, at any rate, not as the best result of either modern theory or modern practice.

It is a great misfortune that the question of a fresh resort to the income tax should have come up under such untoward circumstances, and that it should have received such a solution as this. The question is of too great importance to be disposed of with so little real study as it received from Congress, and the income tax is too important a resource to be discredited in the public mind by the working of an imperfect and crude system. The subject was one for the best and most careful thought of the legislator, in the light of the important body of practice to be found in other countries as well as our own. So far from the careful examination which it required, the matter has had only a snap judgment, and the probability of any thorough treatment of it by our government is indefinitely removed. In the minds of a large part of our people the income tax will be more thoroughly identified than ever with the system in vogue during the Civil War; and five years hence they will seem to have had a fresh trial and bitter experience of the income tax, when, after all, it is only an income tax,- and that a badly devised one, which they have seen applied for the second time. The language used above, no doubt, implies a certain acceptance of the general theory of taxing income. There is good reason for the agreement between the theoretical views of so many economists on this subject and the instinctive popular belief, which is so often met. It is, after all, the aggregate income of society which supplies the fund, and determines an upper limit, for public expenditure and it is the income of each individual member of the society which supplies the fund, and determines the limits, for his contribution to that expenditure. Every tax, says Adam Smith, must be paid from one or other of the sorts of revenue which make up the private revenues of individuals; and his maxim which follows, to the effect that the subjects of a State ought to contribute to its support as nearly as possible in proportion

to the revenue which they respectively enjoy, although sometimes treated as a sounding truism, is, at any rate, unavoidable. So far the economist and the simple polltax payer may very well agree. The former makes his reservation as to the difficulties, or even impossibility, of just administration, as Mill did when he "feared that the fairness which belongs to the principle of an income tax cannot be made to attach to it in practice, and that this tax, while apparently the most just of all modes of raising a revenue, is, in effect, more unjust than many others which are prima facie more objectionable." To the payer of the poll tax, however, it appears that the power of government is equal to every task, and that strict laws. and severe penalties will readily accomplish the work of complete and just assessment. Without accepting this Utopian view of the omnipotence of human law, which is certainly no more true in the case of taxation than in any other of the operations of government, we may at least urge that it is sometimes worth while to inquire how close an approximation to administrative perfection can be made. It is the judgment of some important and enlightened countries, as, for example, of England and Prussia, that, without attaining absolute success, they make an approximation near enough to justice to make it worth their while, under every change of administration, to maintain a tax upon incomes as a branch of their regular revenue. The question whether the United States cannot do the same thing appears to be of some interest. If this government can make such an approximation, the direct resort to the actual source of all taxation has much to recommend it in this country.

The most striking defect in the financial system of the United States is the want of some easy adjustment of the receipts of the government. As a result of those circumstances which have made the customs duties our chief reliance, the Treasury may sometimes have a plethora

when a prosperous business swells our imports, and sometimes a dearth when the course of trade changes; but in neither case have we any important elastic branch of taxation, which can be relied upon to lower a surplus or fill up a deficit at short notice. Neither customs nor excise duties can be used for this purpose without serious disturbance and friction. England, as is well known, meets the analogous difficulty caused by fluctuations, not in her receipts, but in her expenditures—by the adjustment of the income tax. Continental writers and statesmen have long pointed with envy to this unfailing resource of the Chancellor of the Exchequer. With a tax for which the administrative machinery is permanent, but the rate is fixed for only one year at a time, it is easy and usual, even after the fiscal year has begun, to meet unexpected changes in affairs by a change in this variable element of revenue, a change which takes instant effect. This use of the income tax, together with the power given to the government to borrow on short time in anticipation of receipts, is, in large part, the explanation of the singularly close calculation and the small balances of cash with which the English Exchequer is habitually managed. The circumstances of the United States, and the unavoidable difference in our leading sources of taxation, make it unlikely that this generation or the next will see any similar administrative success here; but a much closer adjustment of revenue to actual needs than we have at present could be attained by the use of a well-arranged and quickly movable tax on incomes, as a part of our ordinary revenue. Thus a proper income tax appears to have uses which make it desirable to have its practicability more carefully studied.

When we pass from the case of ordinary revenue, and consider the sources of supply for emergencies, a well-constituted income tax has a still greater importance. Even writers who would rule it out from the every-day practice