invest safely either in other States or in other securities, by a method which actually facilitates the escape of the more important creditor who knows how to invest in other States, or in the large number of practically untaxable securities available to men of wide financial experience? Certainly, the answer must be negative, it is not worth while, if the successful taxation of the one is to hide the escape of the other, if in the clamor over mortgage taxation we are to shut the ears of the electorate to the open failure of the general property tax to reach some of the most conspicuous forms of tax-paying ability. After all is said, the taxation of mortgages must, in most commonwealths, remain a comparatively trivial affair. Suppose, for instance, the State of Wisconsin should-at considerable administrative expense and at the cost of some shifting in the undeveloped portions of the State-add one hundred million dollars' worth of mortgages to the assessment rolls (and more could hardly be added), the taxable basis of the State would be increased less than 7 per cent., and if, as has been shown to be necessary, taxation upon mortgages were limited to, say, of 1 per cent., this would be equivalent to increasing the total assessment by little more than 2 per cent. Mortgage taxation of this kind, therefore, can never be an issue of first importance, never constitute a primary reform. To delay, even so much as a year or two, the introduction of that substitute for the personal property tax which is bound to come, by dallying with such a trifling diversion, would be unwise.

And yet we must add another qualification. There are communities in which no sweeping reform of the personal property tax in the near future is conceivable. In such communities I do not see how a valid case can be made out against mortgage taxation of a proper type. Certainly, no valid objection lies in the criticism that the method of mortgage taxation here contemplated involves

double taxation. There are many forms of justifiable double taxation; and if, as experience has amply demonstrated, it is impracticable to exempt the mortgage debtor upon the amount of his debt, then the least we can do for him is to lighten his load a little by placing mortgage credits upon the assessment rolls. Surely, the creditor in this case should be the last to raise a protest on the score of equity.

Furthermore, it is idle to urge that what the State wants is taxation of property, it being no business of the State who pays the taxes. This argument is misleading and wrong in many ways. It is sufficient here to point out in answer that the creditor frequently lives in a county or assessment district different from that in which the property is situated. When the tax-payers of district A complain that Mr. Doe is escaping taxes on his mortgage, their complaint cannot be silenced by the reply that the property is taxed at its full value in assessment district B. That avails the good people of A nothing. This mortgage tax is a personal tax, designed to touch the taxpaying ability of creditors in the communities in which they live, breathe, and have their social being; and, as I see the question, it is absolutely unaffected by the familiar arguments brought forward by advocates of the exemption of credits. The tax upon property satisfies the demand for taxation of property in rem. What the mortgage tax attempts to do is to supply in an imperfect way a part of the legitimate demand for taxation in personam.

Nor is it a fatal objection to the kind of mortgage taxation here described that it catches the small fry and lets the large fish escape. Relative to capitalists and investors generally, the mortgagee who can be taxed is, indeed, a modest citizen; but compared with the general body of tax-payers, the great mass of people who own encumbered property, this mortgagee is a good-sized fish.

The average mortgage creditor probably ranks well above in tax-paying ability the median tax-payer.

We return, in conclusion, to that aspect of the subject with which the paper opened,-the conflict between economic doctrine and legislative practice. If the preceding analysis has been fairly correct, the honors of the conflict lie as much with the legislator as with the economist. Both are right, the legislator in insisting that some mortgages may be taxed without shifting, the economist in his contention that the whole personal property tax is a failure. For, after all, this is what the economist has been insisting; and it is because he has not consciously realized the trend of his own thought that he is fairly open to criticism. He has been saying to the legislator, with a strong note of criticism in his lecture, "Mortgage taxes will be shifted: therefore, mortgage taxes are bad." That argument the legislator could not understand,-could not understand because he knew it was untrue. Omitting Professor Plehn's study of the California mortgage tax, a thorough-going investigation of a system which is sui generis and in many respects throws no light upon the mortgage problem in other States, it is perfectly fair to say that the academic economists qua economists have written very little on this subject which is worthy of the name of science. Their arguments have been far below, and not at all over, the heads of the better class of legislators in the more progressive States. The aim of the economist has been a good one; but he has employed bad arguments to plead his cause. Unless I am very much mistaken, the syllogism which he has really had in mind is this. The personal property tax is vicious, mortgages are personal property: ergo, mortgage taxation is vicious. And to that argument most of us will heartily say, Amen.

T. S. ADAMS.

UNIVERSITY OF WISCONSIN.

THE NATURE OF CAPITAL: A REJOINDER.

SUMMARY.

The identity of capital and capital goods: is it admitted by Professor Clark? 28-34.-A difference as to knowing the existence and finding the explanation of the return on capital, 34-40.-A question of method: shall a theory of distribution confine itself to the present, or must it reach back to the past? 40-45.-The synchronizing effect of "capital" considered once more, 45-47.

In his reply to the criticisms which I have presented in recent numbers of this Journal, Professor Clark has presented his views on the theory of capital with his wonted literary skill, and yet, I believe, without materially changing the scientific situation. He surpasses himself-if such a thing can be-in new and even more effective phrases, in order to secure the reader's assent to propositions as to which my convictions remain, and will remain, unchanged, that they belong to the realm of phrase, and not to that of fact. I will not enter the field of repetitions. Nevertheless, certain new terms and differences on the part of my honored opponent, even tho they contain no new views, are such that some discussion of them may, at least, serve to bring into clearer light the differences between the rival views, and so may facilitate the choice for the competent reader, to whom my opponent refers for judgment, as I gladly do myself. With this in mind, I will say something as to the remarks of my distinguished opponent.

In defence against my objection that his "true capital" is but a phantom, Professor Clark fortifies its reality, its corporeal character, with some expressions which are even more unequivocal than those which he himself previously used. He says now that capital is a mass of capital goods, not simply that it consists of such goods. He says

further (p. 354) that at any mathematical instant there is no difference between capital and capital goods. I am entitled to assume that with these last words Professor Clark means not only that there is equality, such as exists between twins or between two drops of water, but literal identity. At any mathematical instant, "capital" and the "capital goods" which compose it are, in his opinion, identical things.

I welcome these expressions, which are fully in accord with my own views. But, in the next or second mathematical instant, is the situation different? Is not capital identical with capital goods at every instant? Can the whole course of time, in Professor Clark's own opinion, ever bring an instant in which this identity does not hold and in which capital and capital goods appear as two different material entities? And, if this be not the case, what is to become of the theory that there are two things?1 Professor Clark, to be sure, finds himself face to face with the fact that the capital of to-day is not identical with the capital goods of yesterday, and he seems to think his artifice necessary in order to be able to deny this sort of identity,—the identity of capital with things which were tools or materials yesterday or last year, but which now are either worn out or converted into consumable goods. But, surely, it could not escape the eye of so excellent an investigator that those things upon whose exclusion from capital he rightly lays so much stress have ceased to be capital goods. Things which once were capital goods are capital goods just as little as things which never possessed the qualities of a capital good. But, in order to deny the

1 Professor Clark maintains even more strongly than before that capital also is a material thing, On page 369 he speaks of it as "a very literal and material thing."

The page references in this article are to vol. xxi. of this Journal; to my own articles in the issues for November, and February, pp. 1-2, 247-282, and to Professor Clark's reply in the issue for May, pp. 351-370.