greater than the annual tax, for if five dollars is to be taken permanently from the annual rental of the farm, nearly one hundred dollars is taken at once from its selling value when the prevailing yield on investment is 5 per cent. The rate of adjustment varies greatly under different conditions, and the inflow and the outflow of labor and capital are more or less rapid in the various industries.
Taxes that enterprisers are unable to shift to others are reckoned by them as a part of their costs of production when ever the conditions of competition and of substitution make it possible to do so. Every new tax that curtails the supply of any necessary agent must raise the price of the products and cause more or less of the tax to fall upon the consumers. In the Civil War an increase in the tax on whisky increased its selling price, and distillers who owned stocks on which a smaller tax had already been paid reaped profits of millions of dollars. When the tax on tea was increased in England, all dealers that had accumulated a stock before the law went into effect were gainers. Every change in taxation inevitably affects, either favorably or unfavorably, many interests. The chance to anticipate a change in tax laws, or to get, from those in power, information of a proposed change, makes speculation possible and political corruption profitable.
The fact that a change in taxation is a disturbing element in price is not to be deemed insignificant merely because "all comes out tight in the end." Every change in taxation is an element of uncertainty in business and increases the for tunes of some men at the expense of others. Hence no con siderable change should be made without good reasons in its favor. The older taxes have the virtue of stability, but in many cases they have grown out of harmony with the indus trial conditions. While, therefore, from time to time there is a real need of a reform in the tax system, it should not be undertaken without recognizing the many and complex inter ests involved.
§ 16. Taxation and socialism. Because of its effect on costs, the taxing power gives to the government a means of encouraging some and of discouraging other persons and in dustries. "The power to tax is the power to destroy," is the notable dictum of the Supreme Court. At the same time
it is the power to favor and to enrich the favored. So it is but to be expected that, under the guise of taxation, greedy men, mistaken reformers, sentimentalists, and true philanthropists should constantly attempt to upbuild or to destroy the chosen objects of their favor or of their antago nism. Taxation has been used, for example, to make impos sible the issue of bank-notes by state banks, to discourage the use of whiskey and tobacco, to prohibit child labor, to decrease the use of oleomargarine, and to upbuild chosen industries. The purpose in such legislation is sometimes subtle, at other times frankly recognized. Rarely is it ad mitted, however, by those who use taxation as a means of interference with the ordinary course of business, that this is socialism in the correct sense of the term.° Many active business men who generally oppose any interference with private business, and strongly denounce as socialism the use of legislation intended to favor the weaker industrial classes, nevertheless support a "protective" tariff. But a protective tariff is intended to make selected industries more profitable than they would be if left to the usual rule of supply and demand, and it compels men in other industries to cease exporting goods, and forces many others to pay higher prices than they otherwise would. That such use of the taxing power, either with selfish or unselfish purposes, will cease, is not to be expected; but it is well to recognize the true nature of the case, and to watch carefully the re sults.
6 See ch. 34. REFERENCES.
Bullock, C. J., Selected readings in public finance. Bost. Ginn. 1920.
Daniels, W. 3f., The elements of public finance. N. Y. Holt. Pt. II, chs. I-V. 1904.
Library of Congress. List of References on Municipal Finance and taxation. Washington. 1920.
Plehn, C. C., Public finance. 4th ed. N. Y. Macmillan. 1920. Seligman, E. R. A., Essays in taxation. 8th ed. N. Y. Macmillan. 1913.
United States Census, 1910. Volume on wealth, debt, and taxation. Willoughby, W. F., The movement for budgetary reform in the States. P. 254. New York. Appleton. 1918.
Willoughby, W. F., The problem of a national budget. N. Y. Ap pleton. 1918.