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and they have used this power in such fashion that some of those who are most endangered by it have thought it expedient to pay the sort of tribute which Lowland graziers were glad to give to Rob Roy, justifying the practice to themselves by reasons like those which satisfied the easy conscience of Baillie Nichol Jarvie “ Its clean again our statute law, that must be owned,” said the baillie," the levying and paying black-mail are baith punishable, but if the law cannot protect my barn and byre, wherefore suld I not engage wi' a Hieland gentleman that can ?" Such tributaries, in their immunity from outrage, are probably not shocked by the misfortunes of less powerful or less politic neighbors who are unable to “ save their barns and byre from being harried when the lang nights come in."

With the increase of wealth and business and growth of luxury there has been constant increase in the expenses of government, and the sums which may be levied for this purpose have become so great that the power of apportioning them at pleasure is always dangerous, and with respect to certain interests which are especially worthy of the fostering care of the State, it has become destructive.

The taxes imposed upon such industrial associations as manufacturing, mining and improvement companies are of this oppressive character, and their effects are so injurious politically and socially that it is worth while to give the matter attentive consideration. Our State borrowed its customs and laws in the main from a people to whom the spirit of association is not natural, and who have done little to aid its development. Nations differ widely in this respect, and a history of industrial associations, tracing their origin and exhibiting their purposes and methods, would illustrate the social characteristics of race, as also the influence of climate, the spirit of laws, and the springs and course of civilization. The sentiment which should give such associations natural development seems not to be strong in the English speaking people when compared with the Germans and French, in whom it is much weaker than in the nations reaching toward the Orient.

In this country there is as yet little thought of the social and political tendencies of industrial associations, which have attained only to such partial development as purely business needs have required, and even in this form they have suffered from popular jealousy and the ignorance and unskillfulness of legislation. In Europe the situation is different, the important part which the spirit of association is enacting in human affairs is recognized, and governments which, in principle and policy, are hostile to it, are obliged to study it, to treat it with liberality, and to patronize with the purpose of directing it. The Prussian, French and English laws under which co-operative associations and industrial partnerships are organized, make careful provision for their promotion, and confer upon them corporate rights, while keeping them within the sphere of governmental observation.

We are more and less fortunate than the subjects of other powers, for our State government has no anxieties and little prevision, and our legislators will never trouble themselves to inquire concerning the life of the world and the progress of ideas, things which should be to them of supreme concern. The regard which our State bestows upon industrial associations is so peculiar that one is at a loss to know which to admire most—the ignorance which enacted or the popular patience which endures laws so impolitic, unsocial and oppressive, that they would cause a revolt against any European government attempting to enforce them upon its subjects.

In Pennsylvania associations for business purposes are generally of capitalists, though there are a few composed of workingmen, and the industries of the State have been largely carried forward by corporations, a charter being almost indispensable to the successful management of operations which require the outlay of large sums of money to be repaid during a series of years. The burdens which the State imposes upon such corporations are clearly set forth in the last message of Governor Geary, from which I quote as follows:

“Heretofore on several occasions I have invited the attention of the Legislature to the importance of adopting a more liberal policy toward those citizens who are engaged in industrial enterprises, which employ large numbers of workingmen, and tend to develop the resources of the commonwealth. Involving great risks, and requiring for their successful conduct a large amount of capital, these operations have been, in the main, conducted by means of associations, organized under the general laws which regulate the incorporation of manufacturing, mining and improvement companies. These laws, while they resemble in their principal features the liberal systems in force in other States, fail in their ostensible purpose of encouraging manufacturing industry, because the privileges they grant are enormously burdened with taxat ion.

“This may be illustrated by supposing the case of twenty persons, who each subscribe five thousand dollars to the stock of a company organized for the purpose of producing oil, or mining ore or coal, or manufacturing cotton or woolen goods, iron or steel, or any other commodity. The fund thus created must be expended in lands, buildings and permanent improvements, which are taxable for all purposes to the same extent as if they were owned by an individual operator. In addition to this the company must pay a bonus of one-fourth of one per cent. to the commonwealth upon its stock, amounting to the sum of two hundred and fifty dollars. It is thereafter liable to an annual tax upon its capital stock at the rate of one-half mill for each one per cent. of dividends made or declared. In case of no dividends having been made or declared, then three mills upon the appraised value of the stock. Also, a tax of three per cent. upon the entire amount of net earnings or income. Also, a tax of five per cent. on all interest paid to bondholders and other creditors. (For all these taxes, see Act of May 1, 1868.)*

“ An individual, wealthy enough to furnish a hundred thousand dollars in similar business would be wholly free from these exactions. The State imposes none of these burdens upon him. It does not keep an espionage upon his business, or demand from him sworn statements of his annual profits. It discriminates in his favor against the association of small capitalists, which it professes to encourage. And without sharing in any of the stockholder's risks, it makes itself a partner in their profits and follows them with a grasping hand and a never-ceasing official vigilance of an inquisitorial character over their affairs."

It has been commonly understood that it was the purpose of the Legislature to exempt from the tax on net earnings, such manufacturing companies as made dividends, but unfortunately the language of the Act was rather popular than technical, and made a question for the courts which have a fatal facility in ruling all tax questions against the citizen.t The Act passed in 1864 imposed

*This was in part a compilation of prior laws.

† The case of the Credit Mobilier of America is a striking exception to this general tendency of our courts. This notorious corporation divided nearly ten million dollars among its stockholders without payment of taxes, the Supreme Court having twice overruled the judgments of the Court of Common Pleas of Dauphin coun‘y, making it liable to taxation. Judge Agnew (lissented.

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a tax of three per cent. upon the net earnings of “all companies and corporations doing business in the commonwealth " * * * * “not paying a tax to the State upon dividends under existing laws." Manufacturing companies were paying, and had long paid under the Acts of 1844 and 1859, a tax which was with good reason called a tax on dividends, because by the former Act it is assessed " at the rate of one-half mill for each one per cent. of a dividend,'' etc., and by the latter it is assessed" at the rate of onehalf mill for each one per cent. of a dividend made or declared," the Acts providing further that when no dividends are made there shall be a direct tax of three mills upon a valuation of the capital stock.

Though each Act in general terms proposes to regulate tax upon capital stock of corporations, two taxes were really imposed, one upon dividends, and in default of dividends a different tax upon capital stock. The net earnings tax provided for by the Act of 1864 might have been construed to apply only to those corporations which have few stockholders and manage their business like individual proprietors, making no dividends and returning their stock at a nominal valuation, for the reason that it could not be said to have any market price. It was generally understood that it was the purpose of the Act to reach such companies only and corporations making dividends, upon which they paid a five per cent. tax, supposed that they were exempt from the tax on net earnings. They may have looked into the Digest of Laws, and if so, they found the provisions of the Acts of 1844 and 1859 indexed under the head of “ Tax on Dividends," as is the case to this day.* They would have found the same language used in numerous private acts of the legislature when referring to the five per cent. tax. Their security was, however, unfounded, for upon a case made against a manufacturing company, which has a most noble sphere of usefulness, and of whose achievements the State might well be proud if it had done anything to aid them, it was ruled that the tax paid by the company-rated and assessed upon its declared dividends, digested as a tax on dividends, referred to by the Legislature as the tax on dividends, and called a tax on dividends by the people of the commonwealth—was not a tax

* Purdon's Digest, State Taxes. See Edition 1861.

upon dividends at all, but a tax upon capital stock graduated by dividends, and, as a consequence, large arrears of the tax on net earnings were recovered from the corporation with an added penalty of twelve per cent. per annum.*

It may be supposed that the legislature immediately redressed this unexpected injury. Not at all. Repeatedly asked to do so, it has repeatedly refused, though it could not be pretended that the revenue from this source was needed while a perpetual balance of several millions of dollars was in the hands of the treasurer, from which the State derived no benefit.

This tax upon net earnings of companies, which, as to its most injurious effects, may be said to be of judicial invention, has not been in any way mitigated by the courts, which have most harshly ruled that it includes the rewards of such work as mining coal and pumping oil, and these industries are taxed upon so-called net earnings which are really a proportional exhaustion of capital and often but its partial return to stockholders without any profit. †

The perpetual exaction by the State of eight per cent. of the annual earnings of all manufacturing, mining and improvement companies, and industrial and co-operative associations, has the effect of preventing their formation, it has forced some of them out of existence, and it is hindering the development of the commonwealth.

The day of unquestioned manufacturing supremacy has passed for Pennsylvania. Intelligent citizens are aware of this, and it has not escaped the attention of foreigners. An article by Hugo Hartmann, in the Berg und Huttenmaennische Zeitung of Oct. 25, 1872, says, with reference to Pennsylvania : “This State, which has so long held the first place in the production of iron, may, in spite of the more favorable prospects in its southern part, soon be surpassed by the far West, if it does not make vigorous exertions. It is true that to Pennsylvania, and to its farsighted and energetic engineers, belongs the honor to have brought to a successful issue the employment of anthracite for the extraction of pig iron, for it was so early as July in 1840 that a favorable result was obtained from a high furnace charged with this fuel, * * * * and now

* Case of the Phoenix Iron Company.
† Cases of Ocean Oil Company and Penn Gas Coal Company, etc,

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