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and be ready to buy something, sometime, somewhere, provided exploitation weather is fair. The exploited state, if it wants a railway built or a factory constructed, must then go east to find out whether capital will invest. It must beg for the funds it. ought to have at home. It fears to protest by legislation, because the money it needs may be scared away. Its own citizens dare not undertake competitive enterprise, because their limited funds are so much over-shadowed. Such an illustration overdraws perhaps the effect of any one instance or the returns of any one exploiting company, but it does not overdraw the final results brought about by the exploitation of the many companies, either as to the condition of a state or as to the returns of the companies from their practices.

From the census of 1900, statisticians calculated that 250,000 persons then owned two-thirds of the wealth in the nation. Lately some have estimated that 30,000 persons actually control two-thirds of the wealth, while others place the number at 10,000 persons, or even at a much less number. It matters not which of these estimates is correct. Such concentration means that a large proportion of all the regular, normal income of property and of industry must flow to a few central points; it means that a large proportion of the normal accumulating investment funds must be held in those central points and that the average state (such as these in the west), must be unable to supply funds for current investment in proportion to its industrial production, or in proportion to the needs of its industry. This burden alone is as much as the average commonwealth can safely carry and be reasonably prosperous. And when to this burden there is added a current daily tribute of exploitation of industry, over and above norinal price and normal income, the result is disastrous to the citizens and to their commonwealth. Whether the average tribute of exploitation is 10 per cent of the earnings of the average citizen, or whether it is 20 per cent, it must result in partially or wholly destroying the only margin of return, out of which local prosperity

and home investments can be made. Under such conditions the tendency is for middle men to shift the burden on toward others; for organized labor to demand higher wages; for intermediate industries to raise rates and prices; until a disproportionate burden falls upon those who are unable to shift the burden. But from the standpoint of state welfare all of this is without avail—merely a reapportionment of misfortune—for the tribute of exploitation is a levy over and above all cost.

The practice of exploitation knows no natural limit except that of expediency. Money has no patriotism. So long as the means of making money is not obviously immoral and is not contrary to the statutes, the question of whether men shall take advantage of those means is merely a matter of ability and opportunity. The schemes and devices and plans and systems of levying unearned tribute on industry and the products of industry must continue in time and broaden in extent until restricted by the law of the land. Whether political parties approve or not; whether government would assume the burden of regulation or not; whether we believe in business regulatedl, or business let alone -We have arrived at a condition of industrial progress and industrial opportunity where exploitation is possible and practicable and profitable, and from the very nature of things it will drive on to compel its own limitation by law. Not only will government be driven to limit and regulate, but the activity of regulation must be as broad of scope as the numerous branches of business through which the exploitation is practiced. The governmental regulation can not be fully accomplished by nor limited to mere prohibitory laws, necessary as they may be—the abolition of trusts, the limitation of patent laws and the amendment of tariff laws—because these changes alone will not fully cover nor sufficiently limit exploitation. It will be compelled to cover the field. In some extreme instances, if the agencies of regulation shall prove to be ineffieient, then government may be driven to some form of public ownership.

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Logically, it would seem that the ultimate agency of governmental regulation would be supervision by department aided by such prohibitory laws as may be necessary. The desire that all lawful business shall succeed will be at least co-equal with the desire that exploiting shall cease. The natural tendency would seem to be to make regulation reciprocal-protecting the citizens against unjust charge, helping the industry to soundness and permanency of condition and safety of just profit. This would call for such thoroughness of investigation, such continuous and accurate information concerning the condition and needs of industry, as to make permanent, systematic, department work necessary.

All of this means the extension of governmental activities into the new field; it means business studied, analyzed and understood; it means industry limited here, aided there, and supervised; it means an industrial department of government, businesslike, systematized, impartial, non-political.

As the regulation and protection of industry can not be wholly delegated to the federal government, a substantial portion of the burden must be assumed by the several states. Already a number of them have entered somewhat into this new domain, usually by means of prohibitory statutes only.

This generalization as to economic conditions—the prevalence of exploitation; its logical advance to where it must compel its own limitation by law; the impossibility of full limitation by the mere destruction of any one instrument; the desirability of regulation which shall eliminate the unjust tribute only, and yet add to the stability of all honest industry-would seem to justify the conclusion that the industrial department of state government will eventually be laid out upon a broad foundation with agencies fitted to supervise and justly control a wide domain of business.

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It would be beyond the limits of this discussion, and of any assumption of mine, to predict in detail the probable plan of the

systematized industrial branch of government. That will demand the best thought of men skilled in affairs of state, learned in matters of industry as well as law. It may not be out of place, however, to refer briefly to the general nature of that branch and its relation to other departments. While heretofore associated with the executive department, the industrial branch is essentially different from all the other departments. It serves in a domain where partiality or partisanship would be destructive; it is essentially non-political. It deals with subjects involving the technical learning of industry, matters requiring experience, research, and accurate understanding, and therefore, it demands stability, continuity, permanency of organization. It deals with many and varied features of business, and in its own conduct involves statistics, accounts, records and the transaction of much business; therefore, for economy and efficiency, it demands pre-conceived plan, logical arrangement of the several agencies of service-a systematic, business-like organized fourth department.

With these suggestions, I submit the subject to your consideration, hoping and believing that out of your knowledge of the foundations of law, your familiarity with the problems of industry, your experience in the manifold affairs of state, the right conclusions, whatever they may be, will be found and expressed, in one more contribution to the good government of our great commonwealth.

ADDRESS

OF

WM. V. HODGES

OF

DENVER

PROCEEDS OF MINING OPERATIONS-CAPITAL OR INCOME

The usual “enjoyment” of mining premises consists of the extraction of the valuable materials therefrom, and the conversion of the same into cash or other property of value. We frequently speak of the proceeds of such operations as the “income” from the mine so operated. Until the passage of the corporation tax law of August 5, 1909 (36 Statutes at large, page 11), it was comparatively unimportant whether the proceeds of mining operations were classed as "income” or “capital”. That Act is now repealed and bears only on transactions now passed. The income tax law of October 3, 1913, and the income tax amendment to the Federal Constitution (Sixteenth Amendment), under which the latter law was enacted, are living laws. Under the latter Act, it is of great importance to the mining industry to know whether the proceeds of ores mined and sold should be classed as “capital” or "income” within the meaning of the “Sixteenth Amendment." We know that as a matter of cold hard fact, he who takes metals, coals, clays, oils and similar substances from the soil, has wasted his freehold, although he may have plenished his coffers. Some years ago, a company composed mostly of prominent American mining men, was distributing fabulous dividends on its stock. The managers of the company took care to send a notice to all of its shareholders, advising them that such dividends were in fact a return of capital, and suggested that they be not treated as

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