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President Dubbs:

Mr. O'Donnell has spoken. Are there any other remarks on the motion? If so, the chair will be glad to hear them.

ernor.

Benjamin C. Hilliard :

One suggestion in the report, it occurs to me, is not entirely sound, and that is that legislation should originate with the GovMy notion of the division of the powers of government is that legislation should originate with the legislative body. I see no force, therefore, in postponing the time of assembling the legislature in order that the Governor may get his hands on the levers.

It occurs to me that a man who is chosen to be the chief executive of the State ought on the very first day he is in office have some sort of notion of what the people need at his hands.

If I may say a word about the proposition advanced by our distinguished citizen, Mr. O'Donnell, I should say that it is likely if this Association should conclude to adopt the theory that we do away with the initiative, we would find ourselves following, as in the report it is stated we have been following, the people for some time.

In other words, the lawyers would hardly be able to take unto themselves the power to say to all the people, "You shall not have the initiative."

In my humble judgment, the initiative has come to stay for good or for ill. It is here, and we never will be able to retrace our steps upon that point. So far as I am concerned, I believe it is a good thing, and we should not quarrel with the principle because of some abuses thereof. Let the people have this power-yea, they have it and they will keep it, and this Bar Association better not get in the way or it may possibly be run over.

President Dubbs:

Are there any other remarks upon the motion? If the dis

cussion is at an end, so many as are in favor of the motion that this particular report be received and referred back to the incoming Committee on Law Reform for further report next year will so indicate.

This motion prevailed unanimously.

President Dubbs:

In connection with the report of the Treasurer, it has been the custom of the Association to appoint a subcommittee of the Executive Committee to audit the Treasurer's report, to report to the Association. The chair will appoint Mr. Morris and Mr. Gast, with the request that they examine the Treasurer's report and report back to the meeting tomorrow morning.

The next order of business is the address of Judge Searcy of Durango on "The Fourth Department of Government." We will now have the pleasure of listening to Judge Searcy.

(For the address, see the Appendix.)

President Dubbs:

The next order on the program is an address, "Proceeds of Mining Operations-Capital or Income," by Mr. William V. Hodges of Denver.

(For the address, see the Appendix.)

President Dubbs:

Gentlemen, both of the addresses to which we have listened are now open for discussion. We shall be glad to hear from anyone who cares to discuss either or both of the papers.

E. C. Stimson:

I should like to ask, Mr. President, that Mr. Hodges enlighten us on this proposition: Some poor lawyers have nothing but their years of activity. Would Mr. Hodges consider that the earnings of a lawyer in one of his fifty years, say, were a diminu

tion of his capital, or income properly to be taxed? (Laughter.) I am greatly interested in that.

N. M. Campbell:

I should like to ask Mr. Hodges how he separates income from capital? What is capital and what is income in a mining operation? Would you fix it as the amount of the capital stock, which is often put into the articles of incorporations before it is known whether there is a mine or not? Or is it fixed by the actual value of the mine? How are you going to determine the value of the mine?

William V. Hodges:

That argument has been suggested before. From my point of view, there is no relation whatsoever between the fictitious capital stock of a mining corporation and its capital. Whatever its physical mining premises may be, constitute its capital. It may be designated by the owners as worth $1,000 or $1,000,000, it remains its capital, and so long as the thing which we are discussing is that which comes from that physical capital by a mere conversion of that capital, I say it continues to be capital, and there is no limitation which can be based upon a valuation made today or tomorrow by way of issue of capital stock, or on any other basis.

John H. Denison:

I should like to ask Mr. Hodges what his explanation would be of the case of a man who buys a mine, or a prospect, for a thousand dollars, and digs a half-day and makes a discovery and sells it for a million dollars. Would the difference between the thousand and the million be income?

I should like to have him compare that with the case of a man who buys a mine for a thousand dollars and digs the million dollars out of it and abandons the shaft.

William V. Hodges:

Perhaps I can answer that by calling the gentleman's attention to the case of Gray vs. Darlington, which was decided in 15 Wall., I think the opinion is written by Justice Field.

In that case, which arose under the old income tax, which was passed during the time of the Civil War, a citizen of Pennsylvania had purchased a number of bonds, and had held them for four years. As a result of the lapse of time his bonds had increased about $20,000. The income tax collector of his district laid a tax of $4,000 upon what he called the income from those bonds. The bonds had been sold at the end of the four years.

The case went to the Supreme Court of the United States, and there were two questions upon which the opinion was based. The first question was whether the increase in value of the bonds which had been purchased was "income, gain, or profit," within the meaning of the act. In that particular act the language happened to be "income, gain, or profit." In the present act we have merely "income." Then, too, under the theory of that act the tax was laid upon the "income, gain, or profit of the year." The opinion of the court was to this effect, first, that the increased value in these bonds was not income; secondly, that the income tax was intended to be laid upon the "income, gain, or profit of the year," and that which had accrued during the four years could not in any sense be said to be "income, gain, or profit of the year."

In connection with this question I have often thought of what Judge Denison suggests, that is, the fluctuation in value of mining properties, due to discoveries. I say that those fluctuations have nothing to do with the question of income. They are merely increases or changes in value of the physical capital. It is purely a physical question, and so long as we have in our hand converted capital, so long as there is the capital, whether it be more valu able today than it was when we acquired it or not, the answer is

the same, it would be that the converted thing either is or is not capital.

Harry N. Haynes:

Since Mr. Hodges is under examination, I would like to ask him if there is any difference except in degree between the operation of a mine and the operation of agricultural premises which are exhausted by the raising of crops?

William V. Hodges:

There is a difference, and the difference is here, although it never has been entirely satisfactory even to my own mind. The cutting of growing trees has from the earliest times been considered to a certain extent as waste. If you will remember, the life tenant could take dead trees, as I recall it, but he could not cut off growing trees. That was supposed to be a waste of the capital, a waste of the estate.

Now, the rule is certainly different as to annual crops, or crops that are cut one or two or three or four years apart.

There is a difference in idea there which I can not clearly define. I am satisfied that it is a substantial difference, and that the cutting of growing crops that we plant year after year is not a waste of estate in the sense that the cutting of trees is.

John D. Fleming:

I would like to ask Mr. Hodges the reverse of Judge Denison's question. Suppose a man pays a million dollars for a mine and gets a thousand out of it. Such instances upon the part of individuals or corporations are perhaps known in this state! (Laughter).

Thomas J. O'Donnell:

I object to that going into the record! (Laughter).

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