Meanwhile, General Huerta, having "finished" his Chihuahua campaign in the autumn of 1912, was promoted to the rank of General of Division (Major-General) and decorated for his achievement. It was rumored in many places at that time that General Huerta was about to turn against the Madero Government. Madero, suspecting his loyalty, ordered him back to Mexico City. Huerta took his time about obeying this order, and, when he reported in Mexico City, obtained a sick-leave to have his eyes treated. Huerta was nearly blind when Felix Diaz's revolt broke out in Vera Cruz in October, 1912, and probably thus escaped being drawn into that unsuccessful demonstration.

From this time until the coup d'etat of February 8, 1913, there was no large organized resistance to the Madero Administration, although banditism increased at an alarming rate in all parts of the Republic. The Diaz-Reyes outburst, in Mexico City on February 8, 1913, which resulted in the death of Madero and Suarez and the elevation of Huerta to practical military dictatorship, was brought about by the adherents of the old regime, who looked upon Madero's extinction as a punishment meted out to a criminal who had raised the slaves against their masters. This view prevailed to a considerable extent in Mexico south of San Luis Potosi. In the North, however, the people almost as a whole (at least 90 per cent. in Sonera, and only to a slightly lesser extent in the other provinces) saw in it the cold-blooded murder of their political idol at the hands of unscrupulous moneyed interests and of adherents of the old regime of the days of Porfirio Diaz.

The resentment was general in the North—this new, largely Americanized North, Venustiano Carranza, the governor of Coahuila, organized the resistance in the provinces of Coahuila, Nuevo Leon, and Tamaulipas, while Maytorena, the governor of Sonora, and Pesqueira (later in Washington, D.C., as Carranza's representative), with Obregon as the head of their military forces, rapidly cleared that State of Federals, with the exception of the port of Guaymas. These fights were no mere bloodless affairs, but stubbornly contested, with heavy casualties, as a decided principle was involved in the conflict. Villa, the old bandit and personal enemy of Huerta, organized a force in Sonora, and Urbina did likewise in northern Durango. Arms, and especially money to buy them with, were hard to get. Funds were obtained from the tariff at ports of entry, internal taxation, amounting at times to practical confiscation, contributions, and gifts from various sources. It is said that the Madero family put aside $1,000,000, gold, for this purpose.

Though a few individuals went over to the Constitutionalist cause, the Mexican regular army remained true to the ad interim Government. The revolutionists either held or rapidly possessed themselves of the great railroad lines in the majority of cases. Huerta, who is an excellent organizer, soon appreciated the magnitude of the revolt and rushed troops to the north as rapidly as possible, his strategy being to hold all railroad lines and cities with strong columns which would force the revolutionists to operate in the intervals between the railroads. Then Huerta, with these columns as a supporting framework, pushed out mobile columns for the destruction of the rebel bands.

The Carranzistas understood this plan and, to meet it, tore up all the railroads that they could and adopted as their fixed plan never to risk a general engagement of a large force. For the first few months, the rebels, who had adopted the name of Constitutionalists, continued recruiting their forces and destroying the railroads. The Federals tried to repair the railroads and get enough troops into the north to cope with this movement. They obtained new military equipment of all descriptions, the army was increased, and old rebels, such as Orozco and Salazar, sympathizers or tools of the old regime, were taken into the Federal forces as irregulars and given commands.

To understand the apparent slowness of the Federals in moving from place to place and their inability to pursue the rebels away from the railroads, some idea must be given as to their system of operating. The officers of the regular army are well instructed and quite competent. The enlisted men, however, come from the lowest strata of society, and, except in the case of a foreign war, have to be impressed into the ranks. They bring their women with them to act as cooks and to transport their food and camp equipage. Military transportation, that is to say, baggage trains of four-mule wagons and excellent horses for the artillery, does not exist in the Mexican army. In fact, when away from a railroad, the "soldaderas," as the women are called, carry nearly everything; and they obtain the food necessary for the soldiers' rations. A commissariat, as we understand it, does not exist. This ties the Federals to the railroads, as they can not carry enough ammunition and food for any length of time.

On the other hand, those who first saw Obregon's rebel forces in Sonora and Villa's in Chihuahua were surprised at their organization. There were no women taken with them. They had wagons, regular issues of rations and ammunition, a paymaster, and the men were well mounted and armed.

With Obregon, also, were regiments of Yaqui Indians, who are excellent fighting material. These forces were mobile, and could easily operate away from the railroad. They lacked artillery, without which they were greatly handicapped, especially in the attack on fortified places and on stone or adobe towns. As most of the horses and mules were driven away from the railroads, the insurgents could get all the animals they wanted.

The first large battle occurred on May 9-10-11-12th outside of Guaymas, between Ojeda's Federals and Obregon's Constitutionalists, at a place called Santa Rosa. The Federal advance north consisted of about twelve hundred men and eighteen pieces of artillery. They were opposed by about four thousand men under Obregon, without artillery. Eight hundred Federals were killed and all their artillery captured. The Constitutionalists lost two hundred and fifty men killed and wounded. Comparatively few Federals returned to Guaymas. Each side killed all the wounded that they found, and also all captives who refused to enlist in the captor's force. This success was not followed up and Guaymas remained in the hands of the Federals. The artillery captured by the Constitutionalists had had the breech blocks removed to render them unserviceable; new ones, however, were made in the shops at Cananca by a German mechanician named Klaus.

In the summer, Urbina captured the city of Durango, annihilating the Federals. The city was given over to loot and the greatest excesses were indulged in by the victors. Arson, rape, and the robbing of banks, stores, and private houses were indiscriminately carried on. Horses were stabled in the parlors of the homes of the prosperous citizens, and many non-combatants were killed by the soldiers before order was restored.

At this time the only points held by the Federals on the boundary between the United States and Mexico were Juarez, in Chihuahua, and Nuevo Laredo, in Tamaulipas. The railroads south of these points were also in the physical possession of the Federals but subject to continual interruption at the hands of the Constitutionalists. Venustiano Carranza had established headquarters at Ciudad Porfirio Diaz (Piedras Negras) across the Rio Grande from Eagle Pass, Tex. He started on a trip, during the late summer, through the northern provinces to confer with the leaders of the Constitutionalist movement in order to bring about better coordination of effort on their part. He went through the States of Coahuila, Durango, Chihuahua, and Sonora and established a new headquarters in Sonora. Since then the efforts of the Constitutionalists have been much better coordinated, with the result that they have had much better success.

Jesus Carranza and Pablo Gonzalez were left in charge at Ciudad Porfirio Diaz by Venustiano Carranza when he left on his trip. Shortly after this a Federal column was organized under General Maas for the capture of the railroad between Saltillo and Ciudad Porfirio Diaz. This column slowly worked its way to Monclova and then to Ciudad Porfirio Diaz, which it occupied on October 7th; the Constitutionalists ripped up the railroad and destroyed everything that might be useful to the Federals and a good deal that could not, and offered very little resistance. Villa, in the mean time, having been reenforced by men from Durango and some from Sonora, had been operating in Chihuahua with considerable success. He had fallen on several small Federal columns, destroyed them, and obtained about six pieces of artillery, besides a fresh supply of rifles and ammunition. In September, he had interposed his force between the Federals at Chihuahua City and Torreon, at a place called Santa Rosalia. Villa and the Federals each had about four thousand men. The Federals from the south were making a determined attempt to retake Durango and had started two columns for Torreon of more than two thousand men each, one west from Saltillo, another north from Zacatecas. These had to repair the railroad as they went. Torreon was being held by about one thousand Federal soldiers.

Villa was well informed of these movements, and also of the fact that, in their anxiety to take Durango, a Federal force of about 800 men, under General Alvirez, was to leave Torreon before the arrival of the Saltillo and Zacatecas columns. Having the inner line, Villa with his mobile force could maneuver freely against any one of these. He accordingly left a rear guard in front of the Federals at Santa Rosalia, and, marching south rapidly, met and completely defeated General Alvirez's Federal column about eighteen miles west of Torreon, near the town of Aviles. General Alvirez and 287 of his men were killed, fighting to the last.

Villa then turned toward Torreon. The "soldaderas" of Alvirez's force had escaped when the fight at Aviles began and reached Torreon, quickly spreading the news. The Federal officer in command attempted to round them up, but to no avail, and Torreon's weak garrison became panic stricken, put up a feeble resistance, and evacuated the town. Villa occupied it on the night of October 1st. He sent his mounted troops against the Federal columns from Saltillo and Zacatecas, tearing up the railroad around them, until they both retreated. He maintained splendid order in Torreon; sent a detachment of one officer and twenty-five men to the American consul to protect American interests, and stationed patrols throughout the city with orders to shoot all looters. At first, a few stores containing provisions and clothing were looted, and some Spaniards who were supposed to be aiding the Federals were killed, but the pillaging soon stopped. Villa's occupation of Torreon thus contrasted strikingly with Urbina's occupation of Durango.

The capture of Torreon made precarious the military position of the Federals in Chihuahua, as Torreon was their principal supply point. When Villa's advance reached Santa Rosalia, the Federals evacuated their fortified position at that place and concentrated all available troops at Chihuahua City. They expected that a decided attempt would be made by Villa to take it. The Federals did succeed in repelling small attacks against Chihuahua on November 6th-9th and, to strengthen their garrison, they reduced the troops in Juarez until only 400 remained. Villa, while keeping up the investment of Chihuahua City, prepared a force for a dash on Juarez, and on the night of November 14th-15th the Federal garrison at that place was completely surprised and the city was captured.

These are the main events (to December 1st) that marked this chapter in the inevitable struggle between the new Mexico and the old, before the United States by interfering actively in the tumult changed the entire character of the war. The Carranza practise of killing the wounded shows that even the North has much to learn in civilized methods of warfare. On the other hand, the self-restraint exercised, in many cases, against looting captured towns, indicates that progress has been made. This account also indicates that the new Mexico, in aims as well as in material things, is getting the upper hand.



THE NEW DEMOCRACY

THE FORCES OF CHANGE DOMINATE AMERICA A.D. 1913

WOODROW WILSON

On March 4, 1913, Woodrow Wilson was inaugurated as President of the United States, and thus became the central figure of a new and tremendously important movement. He was, it is true, elected as the candidate of what is known as the Democratic party, which has existed since the days of Thomas Jefferson. But the ideas advanced by President Wilson as being democratic were so different from the original theories and policies of Jefferson that President Wilson himself felt called on to formulate his principles in a now celebrated work entitled "The New Freedom." From the opening pages of this, as originally published in The World's Work, we here, by permission of both the President and the magazine, give his own statement of the ideas of the new era.

The voting body of Americans who stand behind President Wilson are obviously of the type now generally called progressive. In the convention which nominated him, the conservative element of the old Democracy struggled long and bitterly against the naming of any "progressive" candidate. In the Republican party, the strife between conservatism and progress was so bitter as to produce a complete split; and the progressives nominated a candidate of their own, preferring, if they could not control the government themselves, to hand it over to the progressive element among the Democrats. The former political parties in the United States seem to have been so completely disrupted by recent events that even though they continue to hold some power under the old names, they now stand for wholly different things. The two parties which in the triangular presidential contest polled the largest numbers of votes were both "progressive."

So it seems settled that we are to "progress." But whither—and into what? Is there any clear purpose before our new leaders, and how does it differ from mankind's former purposes? That is what President Wilson tries to tell us.

There is one great basic fact which underlies all the questions that are discussed on the political platform at the present moment. That singular fact is that nothing is done in this country as it was done twenty years ago.

We are in the presence of a new organization of society. Our life has broken away from the past. The life of America is not the life that it was twenty years ago; it is not the life that it was ten years ago. We have changed our economic conditions, absolutely, from top to bottom; and, with our economic society, the organization of our life. The old political formulae do not fit the present problems; they read now like documents taken out of a forgotten age. The older cries sound as if they belonged to a past age which men have almost forgotten. Things which used to be put into the party platforms of ten years ago would sound antiquated if put into a platform now. We are facing the necessity of fitting a new social organization, as we did once fit the old organization, to the happiness and prosperity of the great body of citizens; for we are conscious that the new order of society has not been made to fit and provide the convenience or prosperity of the average man. The life of the nation has grown infinitely varied. It does not center now upon questions of governmental structure or of the distribution of governmental powers. It centers upon questions of the very structure and operation of society itself, of which government is only the instrument. Our development has run so fast and so far along the line sketched in the earlier days of constitutional definition, has so crossed and interlaced those lines, has piled upon them such novel structures of trust and combination, has elaborated within them a life so manifold, so full of forces which transcend the boundaries of the country itself and fill the eyes of the world, that a new nation seems to have been created which the old formulae do not fit or afford a vital interpretation of.

We have come upon a very different age from any that preceded us. We have come upon an age when we do not do business in the way in which we used to do business—when we do not carry on any of the operations of manufacture, sale, transportation, or communication as men used to carry them on. There is a sense in which in our day the individual has been submerged. In most parts of our country men work for themselves, not as partners in the old way in which they used to work, but as employees—in a higher or lower grade—of great corporations. There was a time when corporations played a very minor part in our business affairs, but now they play the chief part, and most men are the servants of corporations.

You know what happens when you are the servant of a corporation. You have in no instance access to the men who are really determining the policy of the corporation. If the corporation is doing the things that it ought not to do, you really have no voice in the matter and must obey the orders, and you have, with deep mortification, to cooperate in the doing of things which you know are against the public interest. Your individuality is swallowed up in the individuality and purpose of a great organization.

It is true that, while most men are thus submerged in the corporation, a few, a very few, are exalted to power which as individuals they could never have wielded. Through the great organizations of which they are the heads, a few are enabled to play a part unprecedented by anything in history in the control of the business operations of the country and in the determination of the happiness of great numbers of people.

Yesterday, and ever since history began, men were related to one another as individuals. To be sure there were the family, the Church, and the State, institutions which associated men in certain limited circles of relationships. But in the ordinary concerns of life, in the ordinary work, in the daily round, men dealt freely and directly with one another. To-day, the everyday relationships of men are largely with great impersonal concerns, with organizations, not with other individual men.

Now this is nothing short of a new social age, a new era of human relationships, a new stage-setting for the drama of life.

In this new age we find, for instance, that our laws with regard to the relations of employer and employee are in many respects wholly antiquated and impossible. They were framed for another age, which nobody now living remembers, which is, indeed, so remote from our life that it would be difficult for many of us to understand it if it were described to us. The employer is now generally a corporation or a huge company of some kind; the employee is one of hundreds or of thousands brought together, not by individual masters whom they know and with whom they have personal relations, but by agents of one sort or another. Working men are marshaled in great numbers for the performance of a multitude of particular tasks under a common discipline. They generally use dangerous and powerful machinery, over whose repair and renewal they have no control. New rules must be devised with regard to their obligations and their rights, their obligations to their employers and their responsibilities to one another. New rules must be devised for their protection, for their compensation when injured, for their support when disabled.

There is something very new and very big and very complex about these new relations of capital and labor. A new economic society has sprung up, and we must effect a new set of adjustments. We must not pit power against weakness. The employer is generally, in our day, as I have said, not an individual, but a powerful group; and yet the working man when dealing with his employer is still, under our existing law, an individual.

Why is it that we have a labor question at all? It is for the simple and very sufficient reason that the laboring man and the employer are not intimate associates now, as they used to be in time past. Most of our laws were formed in the age when employer and employees knew each other, knew each other's characters, were associates with each other, dealt with each other as man with man. That is no longer the case. You not only do not come into personal contact with the men who have the supreme command in those corporations, but it would be out of the question for you to do it. Our modern corporations employ thousands, and in some instances hundreds of thousands, of men. The only persons whom you see or deal with are local superintendents or local representatives of a vast organization, which is not like anything that the working men of the time in which our laws were framed knew anything about. A little group of working men, seeing their employer every day, dealing with him in a personal way, is one thing, and the modern body of labor engaged as employees of the huge enterprises that spread all over the country, dealing with men of whom they can form no personal conception, is another thing. A very different thing. You never saw a corporation, any more than you ever saw a government. Many a working man to-day never saw the body of men who are conducting the industry in which he is employed. And they never saw him. What they know about him is written in ledgers and books and letters, in the correspondence of the office, in the reports of the superintendents. He is a long way off from them.

So what we have to discuss is, not wrongs which individuals intentionally do—I do not believe there are a great many of those—but the wrongs of the system. I want to record my protest against any discussion of this matter which would seem to indicate that there are bodies of our fellow citizens who are trying to grind us down and do us injustice. There are some men of that sort. I don't know how they sleep o' nights, but there are men of that kind. Thank God they are not numerous. The truth is, we are all caught in a great economic system which is heartless. The modern corporation is not engaged in business as an individual. When we deal with it we deal with an impersonal element, a material piece of society. A modern corporation is a means of cooperation in the conduct of an enterprise which is so big that no one can conduct it, and which the resources of no one man are sufficient to finance. A company is formed; that company puts out a prospectus; the promoters expect to raise a certain fund as capital stock. Well, how are they going to raise it? They are going to raise it from the public in general, some of whom will buy their stock. The moment that begins, there is formed—what? A joint-stock corporation. Men begin to pool their earnings, little piles, big piles. A certain number of men are elected by the stockholders to be directors, and these directors elect a president. This president is the head of the undertaking, and the directors are its managers.

Now, do the working men employed by that stock corporation deal with that president and those directors? Not at all. Does the public deal with that president and that board of directors? It does not. Can anybody bring them to account? It is next to impossible to do so. If you undertake it you will find it a game of hide and seek, with the objects of your search taking refuge now behind the tree of their individual personality, now behind that of their corporate irresponsibility.

And do our laws take note of this curious state of things? Do they even attempt to distinguish between a man's act as a corporation director and as an individual? They do not. Our laws still deal with us on the basis of the old system. The law is still living in the dead past which we have left behind. This is evident, for instance, with regard to the matter of employers' liability for working men's injuries. Suppose that a superintendent wants a workman to use a certain piece of machinery which it is not safe for him to use, and that the workman is injured by that piece of machinery. Our courts have held that the superintendent is a fellow servant, or, as the law states it, a fellow employee, and that, therefore, the man can not recover damages for his injury. The superintendent who probably engaged the man is not his employer. Who is his employer? And whose negligence could conceivably come in there? The board of directors did not tell the employee to use that piece of machinery; and the president of the corporation did not tell him to use that piece of machinery. And so forth. Don't you see by that theory that a man never can get redress for negligence on the part of the employer? When I hear judges reason upon the analogy of the relationships that used to exist between workmen and their employers a generation ago, I wonder if they have not opened their eyes to the modern world. You know, we have a right to expect that judges will have their eyes open, even though the law which they administer hasn't awakened.

Yet that is but a single small detail illustrative of the difficulties we are in because we have not adjusted the law to the facts of the new order.

Since I entered politics, I have chiefly had men's views confided to me privately. Some of the biggest men in the United States, in the field of commerce and manufacture, are afraid of somebody, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they had better not speak above their breath when they speak in condemnation of it.

They know that America is not a place of which it can be said, as it used to be, that a man may choose his own calling and pursue it just so far as his abilities enable him to pursue it; because to-day, if he enters certain fields, there are organizations which will use means against him that will prevent his building up a business which they do not want to have built up; organizations that will see to it that the ground is cut from under him and the markets shut against him. For if he begins to sell to certain retail dealers, to any retail dealers, the monopoly will refuse to sell to those dealers, and those dealers will be afraid and will not buy the new man's wares.

And this is the country which has lifted to the admiration of the world its ideals of absolutely free opportunity, where no man is supposed to be under any limitation except the limitations of his character and of his mind; where there is supposed to be no distinction of class, no distinction of blood, no distinction of social status, but where men win or lose on their merits.

I lay it very close to my own conscience as a public man whether we can any longer stand at our doors and welcome all newcomers upon those terms. American industry is not free, as once it was free; American enterprise is not free; the man with only a little capital is finding it harder to get into the field, more and more impossible to compete with the big fellow. Why? Because the laws of this country do not prevent the strong from crushing the weak. That is the reason, and because the strong have crushed the weak, the strong dominate the industry and the economic life of this country. No man can deny that the lines of endeavor have more and more narrowed and stiffened; no man who knows anything about the development of industry in this country can have failed to observe that the larger kinds of credit are more and more difficult to obtain, unless you obtain them upon the terms of uniting your efforts with those who already control the industries of the country; and nobody can fail to observe that any man who tries to set himself up in competition with any process of manufacture which has been taken under the control of large combinations of capital will presently find himself either squeezed out or obliged to sell and allow himself to be absorbed.

There is a great deal that needs reconstruction in the United States. I should like to take a census of the business men—I mean the rank and file of the business men—as to whether they think that business conditions in this country, or rather whether the organization of business in this country, is satisfactory or not. I know what they would say if they dared. If they could vote secretly they would vote overwhelmingly that the present organization of business was meant for the big fellows and was not meant for the little fellows; that it was meant for those who are at the top and was meant to exclude those who are at the bottom; that it was meant to shut out beginners, to prevent new entries in the race, to prevent the building up of competitive enterprise that would interfere with the monopolies which the great trusts have built up.

What this country needs, above everything else, is a body of laws which will look after the men who are on the make rather than the men who are already made. Because the men who are already made are not going to live indefinitely, and they are not always kind enough to leave sons as able and as honest as they are.

The originative part of America, the part of America that makes new enterprises, the part into which the ambitious and gifted working man makes his way up, the class that saves, that plans, that organizes, that presently spreads its enterprises until they have a national scope and character—that middle class is being more and more squeezed out by the processes which we have been taught to call processes of prosperity. Its members are sharing prosperity, no doubt; but what alarms me is that they are not originating prosperity. No country can afford to have its prosperity originated by a small controlling class. The treasury of America does not lie in the brains of the small body of men now in control of the great enterprises that have been concentrated under the direction of a very small number of persons. The treasury of America lies in those ambitions, those energies, that can not be restricted to a special, favored class. It depends upon the inventions of unknown men, upon the originations of unknown men, upon the ambitions of unknown men. Every country is renewed out of the ranks of the unknown, not out of the ranks of those already famous and powerful and in control.

There has come over the land that un-American set of conditions which enables a small number of men who control the Government to get favors from the Government; by those favors to exclude their fellows from equal business opportunity; by those favors to extend a network of control that will presently drive every industry in the country, and so make men forget the ancient time when America lay in every hamlet, when America was to be seen on every fair valley, when America displayed her great forces on the broad prairies, ran her fine fires of enterprise up over the mountain sides and down into the bowels of the earth, and eager men were everywhere captains of industry, not employees; not looking to a distant city to find out what they might do, but looking about among their neighbors, finding credit according to their character, not according to their connections, finding credit in proportion to what was known to be in them and behind them, not in proportion to the securities they held that were approved where they were not known. In order to start an enterprise now, you have to be authenticated, in a perfectly impersonal way, not according to yourself, but according to what you own that somebody else approves of your owning. You can not begin such an enterprise as those that have made America until you are so authenticated, until you have succeeded in obtaining the good-will of large allied capitalists. Is that freedom? That is dependence, not freedom.

We used to think, in the old-fashioned days when life was very simple, that all that government had to do was to put on a policeman's uniform and say, "Now don't anybody hurt anybody else." We used to say that the ideal of government was for every man to be left alone and not interfered with, except when he interfered with somebody else; and that the best government was the government that did as little governing as possible. That was the idea that obtained in Jefferson's time. But we are coming now to realize that life is so complicated that we are not dealing with the old conditions, and that the law has to step in and create the conditions under which we live, the conditions which will make it tolerable for us to live.

Let me illustrate what I mean: It used to be true in our cities that every family occupied a separate house of its own, that every family had its own little premises, that every family was separated in its life from every other family. That is no longer the case in our great cities. Families live in tenements, they live in flats, they live on floors; they are piled layer upon layer in the great tenement houses of our crowded districts, and not only are they piled layer upon layer, but they are associated room by room, so that there is in every room, sometimes, in our congested districts, a separate family. In some foreign countries they have made much more progress than we in handling these things. In the city of Glasgow, for example (Glasgow is one of the model cities of the world), they have made up their minds that the entries and the hallways of great tenements are public streets. Therefore, the policeman goes up the stairway and patrols the corridors; the lighting department of the city sees to it that the halls are abundantly lighted. The city does not deceive itself into supposing that that great building is a unit from which the police are to keep out and the civic authority to be excluded, but it says: "These are public highways, and light is needed in them, and control by the authority of the city."

I liken that to our great modern industrial enterprises. A corporation is very like a large tenement house; it isn't the premises of a single commercial family; it is just as much a public affair as a tenement house is a network of public highways.

When you offer the securities, of a great corporation to anybody who wishes to purchase them, you must open that corporation to the inspection of everybody who wants to purchase. There must, to follow out the figure of the tenement house, be lights along the corridors, there must be police patrolling the openings, there must be inspection wherever it is known that men may be deceived with regard to the contents of the premises. If we believe that fraud lies in wait for us, we must have the means of determining whether our suspicions are well founded or not. Similarly, the treatment of labor by the great corporations is not what it was in Jefferson's time. Whenever bodies of men employ bodies of men, it ceases to be a private relationship. So that when courts hold that working men can not peaceably dissuade other working men from taking employment, and base the decision upon the analogy of domestic servants, they simply show that their minds and understandings are lingering in an age which has passed away. This dealing of great bodies of men with other bodies of men is a matter of public scrutiny, and should be a matter of public regulation.

Similarly, it was no business of the law in the time of Jefferson to come into my house and see how I kept house. But when my house, when my so-called private property, became a great mine, and men went along dark corridors amidst every kind of danger in order to dig out of the bowels of the earth things necessary for the industries of a whole nation, and when it came about that no individual owned these mines, that they were owned by great stock companies, then all the old analogies absolutely collapsed, and it became the right of the government to go down into these mines to see whether human beings were properly treated in them or not; to see whether accidents were properly safeguarded against; to see whether modern economical methods of using these inestimable riches of the earth were followed or were not followed. If somebody puts a derrick improperly secured on top of a building or overtopping the street, then the government of the city has the right to see that that derrick is so secured that you and I can walk under it and not be afraid that the heavens are going to fall on us. Likewise in these great beehives where in every corridor swarm men of flesh and blood, it is the privilege of the government, whether of the State or of the United States, as the case may be, to see that human life is properly cared for, and that human lungs have something to breathe.

These, again, are merely illustrations of conditions. We are in a new world, struggling under old laws. As we go inspecting our lives to-day, surveying this new scene of centralized and complex society, we shall find many more things out of joint.

One of the most alarming phenomena of the time—or rather it would be alarming if the Nation had not awakened to it and shown its determination to control it—one of the most significant signs of the new social era is the degree to which government has become associated with business. I speak, for the moment, of the control over the Government exercised by Big Business. Behind the whole subject, of course, is the truth that, in the new order, government and business must be associated, closely. But that association is, at present, of a nature absolutely intolerable; the precedence is wrong, the association is upside down. Our Government has been for the past few years under the control of heads of great allied corporations with special interests. It has not controlled these interests and assigned them a proper place in the whole system of business; it has submitted itself to their control. As a result, there have grown up vicious systems and schemes of governmental favoritism (the most obvious being the extravagant tariff), far-reaching in effect upon the whole fabric of life, touching to his injury every inhabitant of the land, laying unfair and impossible handicaps upon competitors, imposing taxes in every direction, stifling everywhere the free spirit of American enterprise.

Now this has come about naturally; as we go on, we shall see how very naturally. It is no use denouncing anybody or anything, except human nature. Nevertheless, it is an intolerable thing that the government of the Republic should have got so far out of the hands of the people; should have been captured by interests which are special and not general. In the train of this capture follow the troops of scandals, wrongs, indecencies, with which our politics swarm.

There are cities in America of whose government we are ashamed. There are cities everywhere, in every part of the land, in which we feel that, not the interests of the public, but the interests of special privileges of selfish men, are served; where contracts take precedence over public interest. Not only in big cities is this the case. Have you not noticed the growth of socialistic sentiment in the smaller towns? Not many months ago I stopped at a little town in Nebraska while my train lingered, and I met on the platform, a very engaging young fellow, dressed in overalls, who introduced himself to me as the mayor of the town, and added that he was a Socialist. I said, "What does that mean? Does that mean that this town is socialistic?" "No, sir," he said; "I have not deceived myself; the vote by which I was elected was about 20 per cent. socialistic and 80 per cent, protest." It was protest against the treachery to the people and those who led both the other parties of that town.

All over the Union people are coming to feel that they have no control over the course of affairs. I live in one of the greatest States in the Union, which was at one time in slavery. Until two years ago we had witnessed with increasing concern the growth in New Jersey of a spirit of almost cynical despair. Men said, "We vote; we are offered the platform we want; we elect the men who stand on that platform, and we get absolutely nothing." So they began to ask, "What is the use of voting? We know that the machines of both parties are subsidized by the same persons, and therefore it is useless to turn in either direction."

It is not confined to some of the State governments and those of some of the towns and cities. We know that something intervenes between the people of the United States and the control of their own affairs at Washington. It is not the people who have been ruling there of late.

Why are we in the presence, why are we at the threshold, of a revolution? Because we are profoundly disturbed by the influences which we see reigning in the determination of our public life and our public policy. There was a time when America was blithe with self-confidence. She boasted that she, and she alone, knew the processes of popular government; but now she sees her sky overcast; she sees that there are at work forces which she did not dream of in her hopeful youth.

Don't you know that some man with eloquent tongue, without conscience, who did not care for the Nation, could put this whole country into a flame? Don't you know that this country from one end to another believes that something is wrong? What an opportunity it would be for some man without conscience to spring up and say: "This is the way. Follow me!"—and lead in paths of destruction.

The old order changeth—changeth under our very eyes, not quietly and equably, but swiftly and with the noise and heat and tumult of reconstruction.

I suppose that all struggle for law has been conscious, that very little of it has been blind or merely instinctive. It is the fashion to say, as if with superior knowledge of affairs and of human weakness, that every age has been an age of transition, and that no age is more full of change than another; yet in very few ages of the world can the struggle for change have been so widespread, so deliberate, or upon so great a scale as in this in which we are taking part.

The transition we are witnessing is no equable transition of growth and normal alteration; no silent, unconscious unfolding of one age into another, its natural heir and successor. Society is looking itself over, in our day, from top to bottom; is making fresh and critical analysis of its very elements; is questioning its oldest practises as freely as its newest, scrutinizing every arrangement and motive of its life; and it stands ready to attempt nothing less than a radical reconstruction, which only frank and honest counsels and the forces of generous cooperation can hold back from becoming a revolution. We are in a temper to reconstruct economic society, as we were once in a temper to reconstruct political society, and political society may itself undergo a radical modification in the process. I doubt if any age was ever more conscious of its task or more unanimously desirous of radical and extended changes in its economic and political practise.

We stand in the presence of a revolution—not a bloody revolution, America is not given to the spilling of blood—but a silent revolution whereby America will insist upon recovering in practise those ideals which she has always professed, upon securing a government devoted to the general interest and not to special interests.

We are upon the eve of a great reconstruction. It calls for creative statesmanship as no age has done since that great age in which we set up the government under which we live, that government which was the admiration of the world until it suffered wrongs to grow up under it which have made many of our own compatriots question the freedom of our institutions and preach revolution against them. I do not fear revolution. I have unshaken faith in the power of America to keep its self-possession. Revolution will come in peaceful guise, as it came when we put aside the crude government of the Confederation, and created the great Federal Union which governed individuals, not States, and which has been these one hundred and thirty years our vehicle of progress. Some radical changes we must make in our law and practise. Some reconstructions we must push forward, which a new age and new circumstances impose upon us. But we can do it all in calm and sober fashion, like statesmen and patriots.

I do not speak of these things in apprehension, because all is open and above-board. This is not a day in which great forces rally in secret. The whole stupendous program must be publicly planned and canvassed. Good temper, the wisdom that comes of sober counsel, the energy of thoughtful and unselfish men, the habit of cooperation and of compromise which has been bred in us by long years of free government in which reason rather than passion has been made to prevail by the sheer virtue of candid and universal debate, will enable us to win through to still another great age without violence.



THE INCOME TAX IN AMERICA

THE UNITED STATES CONSTITUTION AMENDED A.D. 1913

JOSEPH A. HILL

During the year 1913 a most amazing event happened. The United States amended its Constitution by peaceful means. Indeed the Constitution was twice amended; for, having passed the sixteenth amendment in February, permitting an income tax, the States, just to show what they could do when aroused to it, passed the seventeenth amendment in May, authorizing the direct election of United States senators by the people.

Amending the United States Constitution is so difficult and cumbrous a proceeding, that it had not previously been accomplished for over a century, except by the throes of the terrible Civil War. The original Constitution had twelve amendments added to it before it was fully established in running order in 1804. The thirteenth, fourteenth, and fifteenth amendments were added after 1865 to prohibit slavery. They were forced upon the unwilling Southern States. From 1804 to 1913 no amendment was put through by the regular process. Yet in that time efforts to amend were made on over one hundred and forty occasions. Men had grown discouraged at last; they said that amendment was impossible. The cumbrous system which has thus so long blocked all change was that Congress must by a two-thirds vote in each House agree to submit an amendment to the States. These must then pass upon the new law, each in its own legislature. If three-fourths of the legislatures approved, the amendment was to be accepted. Few of the proposed changes ever won a two-thirds vote in both Congressional Houses; and of those few not one had ever appealed to the necessary overwhelming majority of State legislatures. The Senatorial amendment passed Congress several years ago, and had long been knocking rather hopelessly at legislative doors. Then the Income Tax amendment appeared. Congress passed it almost hurriedly in a spasm of progressiveness in 1909. Then came the great sweep of progressive policies to victory in the elections of 1912; and legislatures everywhere awoke to the universal insistence on the Income Tax. All the States but six approved the amendment; and one of the last acts of President Taft during his administration was to proclaim its adoption. The popular amendment swept along in its train the Senatorial change; and the latter, though still opposed by most of the old South, was ratified by all the rest of the States except Rhode Island and Utah. So it also became law.

Nothing illustrates better the "tyranny of the dead hand" in the United States than the history of the income tax. The Constitution laid it down that no head tax or other direct tax should be imposed except by apportioning it among the several States on the basis of their population. No more effective barrier to any system of direct taxation could possibly have been devised. It would seem clear that the main intention of this Constitutional provision was not merely to protect the people of the smaller States, but to force the United States Government to depend for its revenue upon indirect taxes. Such, at any rate, has been its effect. Legal ingenuity, however, can get round anything. The Supreme Court decided as long ago as 1789 that an income tax was not a direct tax, and need not, therefore, be apportioned among the States. During the Civil War, though not, curiously enough, until every other source of taxable wealth had pretty well run dry, an income tax was actually imposed by three separate Acts of Congress, the Act of 1864 levying a tax of 5 per cent. on all incomes between $600 and $5,000, and of 10 per cent. on all incomes above $5,000. The tax continued to be collected up to 1872, when it was repealed.

The constitutional character of the tax, when levied without apportionment among the States of the Union, was once more fully argued out in the Supreme Court, which in 1880 reaffirmed its decision of 1789, that a tax on incomes was not a direct tax. Some fifteen years later, however, the question emerged again, and in a crucial form. The Democrats came into power in 1893, and proceeded to reduce the tariff, relying upon a tax of 2 per cent. on all incomes of over $4,000 to make good the expected loss of revenue. The Supreme Court in 1895 shattered all their fiscal plans and policies by pronouncing the income tax to be a direct tax, and therefore incapable of being levied, except in strict proportion to the population of the various States, and therefore, in effect, incapable of being levied at all.

That decision, in all its absurdity, has stood ever since. Its consequences were to deny to the United States Government the right to tax incomes, to restrict it still further to customs duties as virtually its sole source of revenue, to deprive it of a power that might one day be vital to the safety of the Union, and to exhibit it in a condition of feebleness that was altogether incompatible with any rational conception of a sovereign State. It is true that the Supreme Court has changed not only its personnel, but its spirit, and its whole attitude toward questions of public policy, since 1895. It has more and more allowed the influence of the age and the necessities of the times and the clear demands of social and economic justice to moderate its decisions; and had the question of an income tax been brought before it any time in the last five years, it would probably have reversed its judgment of 1895. But President Taft was undoubtedly right when he urged, in 1909, that the risk of another adverse decision was too great to be run, and that the safer course was to proceed by way of an amendment to the Constitution.

The mere passing of the Income Tax amendment did not, however, establish an income tax. It merely authorized the government to do this at will. President Wilson's administration was prompt to take the matter up. The Democrats, in conjunction with their reduction of the tariff, needed a new source of revenue. So in October of 1913 the Income Tax law was passed. In theory an Income Tax is obviously the most just of all taxes. It summons each citizen to pay for the government in proportion to his wealth; and his wealth marks roughly the amount of government protection that he needs. In practise, however, the working out of an income tax is so complex that every grumbler can find in its intricacies some cause of complaint. The present tax is therefore described here by an expert statistician, Mr. Joseph A. Hill, the United States Government official at the head of the Division of Revision and Results of the Census Bureau in Washington.

Among the notable events of the year 1913, one of the most important in its influence upon the national finances and constitutional development of the United States is the adoption of an amendment to the Federal Constitution giving Congress the power "to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States and without regard to any census or enumeration." The mere fact that an amendment of any kind has been adopted is notable, this being the first occasion on which the Constitution had undergone any change since the period of the Civil War, and the first amendment adopted in peaceful and normal times since the early days of the Republic.

It is a little remarkable, although perhaps not altogether accidental, that the adoption of this amendment should coincide with the return to power of the political party whose attempt to levy an income tax in 1894 was frustrated by the decision of the Supreme Court in that year. Then as now an income tax was a component part of the program of fiscal and commercial reform to which that party was committed. This program included the reduction of protective tariff duties and the direct taxation of incomes. What the Democratic party failed to accomplish in 1894, it has had a free hand to do in 1913. Indeed, the national taxation of incomes might almost be regarded as a mandate of the people of the United States. At any rate, it was a foregone conclusion that the adoption of the constitutional amendment would be immediately followed by the enactment of an income-tax law.

The law instituting the income tax was approved October 31[?], together with the law revising the tariff, both measures being included in one comprehensive statute entitled "An Act to reduce tariff duties and to provide revenue for Government, and for other purposes." It is the object of the present article to give a general description of the income tax. This seems to be especially well worth while because the tax can not be readily understood from a mere perusal of the involved and sometimes obscure phraseology of the law itself. For the same reason, however, the task of interpretation is not easy or entirely safe. The law has certain novel features; and some of the questions of detail to which they give rise can not be answered until we have the official construction placed upon the language of the act by the executive branch of the government and possibly by the courts. At the same time, the main features of the tax become fairly evident to any one who makes a careful study of the provisions of the act, even though its application to specific cases may remain doubtful.

The law provides that incomes shall be subject to a tax of one per cent. on the amount by which they exceed the prescribed minimum limit of exemption. This is designated as the "normal income tax." There is, then, an "additional tax" of one per cent, on the amount by which any income exceeds $20,000. The rate is increased to two per cent. on the amount above $50,000, to three per cent. above $75,000, to four per cent. above $100,000, to five per cent. above $250,000, and to six per cent. above $500,000. Therefore, under the normal and additional tax combined, the first $20,000 of income, exclusive of the minimum exemption, will be taxed one per cent.; the next $30,000, two per cent.; the next $25,000, three per cent.; the next $25,000, four per cent.; the next $150,000, five per cent.; the next $250,000, six per cent.; and all income above that point seven per cent. This is a rigorous application of the progressive principle.

The minimum exemption, at the same time, is comparatively high,—$4,000 for a married person and $3,000 for everybody else. The higher exemption in case of the married is conditional upon husband and wife living together, and applies only to their aggregate income; that is to say, it can not be deducted from the income of each. It may be noted, in this connection, that in England the exemption allowed under the income tax is L160 or $800; in Prussia it is 900 marks, or $225; and in the State of Wisconsin it is $800 for individuals and $1,200 for a husband and wife, with a further allowance for children or dependent members of the family.

The sharply progressive rates and the comparatively high exemption have given rise to the criticism that this is a rich man's income tax and disregards the principle that all persons should contribute to the expenses of the government in proportion to their several abilities. It is often said that an income tax ought to reach all incomes with the exception of those which are close to or below the minimum necessary for subsistence, and that if people generally were called upon to contribute directly to the government they would take greater interest in public affairs and show more concern over any wasteful or unwise expenditure of public money. In reply it is contended that the limitation of the tax to the wealthy or well-to-do classes is justified because these classes do not pay their fair share of the indirect national taxes, or of local property taxes. These debatable questions lie outside the scope of the present article. It is evident, however, that the income tax should not be criticized as if it were a single tax or formed the only source of revenue for the Federal government. From the fiscal standpoint it occupies a subordinate position in the national finances, being expected to yield about $125,000,000 annually out of a total estimated tax revenue of $680,000,000.

The normal tax of one per cent, is to be levied upon the income of corporations. In effect this provision of the law merely continues the corporation or "excise" tax which was already in existence. But that tax now becomes an integral part of the income tax, covering the income which accrues to the stockholder and is distributable in the form of dividends. On the theory that this income is reached at the source by the tax upon the net earnings of the corporation the dividends as such are exempt. They are not to be included, so far as concerns the normal tax, in the taxable incomes of the individual stockholders and the law does not provide that the tax paid by the corporation shall be deducted from the dividend.

It is perhaps a question whether under these conditions income which consists of dividends should be considered as subject to the normal tax or as exempt. It may be contended that a tax upon the net earnings of corporations is virtually a tax on the stockholder's income, and in theory this is true. But so long as the tax is not actually withheld from the dividends, or the dividends are not reduced in consequence of the tax, the stockholder's current income is not affected. The imposition of the tax might indeed affect his prospective income and might depreciate the value of his stocks. It is hardly likely, however, that such effects will be perceptible, at least as regards the stocks of railroads and other large corporations. If, however, it be considered that income consisting of dividends pays the tax, it follows that the stockholder's income is taxed no matter how small it may be. No minimum is left exempt. On the other hand, if it be considered that all dividends are virtually exempt, the stockholder would seem to be unduly favored under this form of taxation in comparison with people whose incomes are derived from other sources. Doubtless in future the investor will look upon dividends as a form of income not subject to the normal income tax.

In the levy of the normal income tax there is to be a limited application of the method of assessment and collection at the source of the income. This method is applied very completely in the taxation of income in Great Britain. It may be well to recall summarily the essential features of the British system. The tax is levied upon the property or industrial enterprise which yields or produces the income. But the person occupying the property or conducting the enterprise, and paying the assessment in the first instance, is authorized and required to deduct the tax from the income as it is distributed among the persons entitled to share in it either as proprietors, landlords, creditors, or employees. Under the English system, an industrial corporation, for instance, pays the income tax upon its gross earnings and then deducts it from the dividends, interest, salaries, and rents as these payments are made. The householder pays an assessment levied upon the annual value of his dwelling (less an allowance for repairs and insurance) and then if he occupies the premises as tenant deducts the tax from his rent. The income from agriculture is reached by a similar assessment upon the farmer, based upon the annual or rental value of the farm and with the same right of deduction from the rent if he is a tenant farmer.

From the standpoint of the government, the main advantage of this mode of assessment as compared with a tax levied directly upon the recipients of the income is the greater certainty with which it reaches the income subject to taxation. The opportunities for evasion by concealment of income are reduced to a minimum, partly because the sources of income are, in general, not easily concealed and partly because, to a considerable extent, the persons upon whom the tax is assessed are not interested in avoiding the tax. The advantages, however, are not all on the side of the government. The tax possesses certain advantages from the standpoint of the taxpayer, also, assuming him to be an honest taxpayer who is not seeking opportunities to evade taxation. One advantage is that he is relieved in almost every case from the necessity of revealing to the tax officials the whole of his personal income. The tax does not pry into his personal affairs. Another advantage is that the tax is paid out of current income, being deducted from the income as it is received. It is therefore distributed over the year and adjusted to the flow of income as it comes in. A tax thus collected is less burdensome in its incidence than a tax paid in one lump sum several months after the expiration of the year to which it related and after the income on which it is levied has been all received and perhaps all expended.

The English system of assessing an income tax at the source, however, has its disadvantages. It is admirably suited for a tax levied at a uniform rate on all income or on all income above a small minimum. But it is not well suited for the application of progressive taxation or for the introduction of gradations or distinctions based upon the size or character of the individual incomes. Nevertheless, the English income tax, besides exempting a minimum, provides for graded reductions or abatements in favor of the possessors of small incomes above the minimum, and for a reduced rate on "unearned" income within certain limits. All this, however, makes necessary a declaration or complete statement of income from the persons claiming the benefit of those provisions, and also necessitates refunding a large amount of the tax collected at the source. Moreover, the progressive principle has recently been applied by imposing a "super-tax" on incomes in excess of L5,000, which also requires a declaration, the tax being necessarily assessed upon the possessor of the income and not at the source. The super-tax, it may be observed, occupies a position in the English system similar to that of the additional tax in the United States, serving to increase the tax upon the larger incomes in accordance with the principle of progression.

Considering the various provisos and exceptions in connection with the general rule of the act, the scope of the application of the method of collecting the tax at the source may perhaps be safely stated thus: the normal tax is to be deducted (1) from all interest payments made by corporations on bonds and the like, without regard to the amount; (2) from all other interest payments when the amount is more than $3,000 in any one year; (3) from all payments of rents, salaries, or wages amounting in any one case to over $3,000 annually; (4) from all other payments of over $3,000 (excepting dividends) which may be comprised under the designations "premiums, compensations, remuneration, emoluments, or other fixed or determinable gains, profits, or income."

The principle of assessing income at its source, as applied in this act, does not relieve the individual from the necessity of making a full revelation to the tax officials of his personal income from all sources. Though this statement needs to be qualified in one or two particulars, the law provides in general that every person subject to the tax and having an income of $3,000 or over shall make a true and accurate return under oath or affirmation "setting forth specifically the gross amount of income from all separate sources and from the total thereof deducting the aggregate items or expenses and allowance" authorized by the law. Although income from which the tax has been withheld is not included in the net personal and taxable income of the taxpayer, it must, nevertheless, be accounted for and included in his declaration as a part of his gross income, forming one of the specified items which are to be deducted from the gross income in arriving at the income subject to taxation.

As already intimated, the general requirement of the full and complete statement of income is subject to certain exceptions. One relates to the income from dividends, the law providing that "persons liable to the normal tax only ... shall not be required to make return of the income derived from dividends on the capital stock or from the net earnings of corporations, joint-stock companies or associations, and insurance companies taxable upon their net income." It will be noted that this proviso is restricted to persons who are "liable for the normal tax only," i.e., persons having net incomes under $20,000. It would seem, therefore, that the taxpayer claiming and securing this privilege must in some way, without revealing the amount received from dividends, satisfy the tax assessors that his total net income, including the dividends (amount not stated), does not exceed $20,000. Of course a form of statement can easily be devised to cover the situation. But whether the law will be administered in such a way that this provision affords some relief from the general obligation of making a detailed and complete statement of income remains to be seen.

Another exception to the general requirement of a complete declaration of income covers the case of the taxpayer whose entire income has been assessed and the tax on it deducted at the source. The law relieves such persons from the obligation of making any declaration of income; although it is not certain that this privilege can be secured without foregoing or sacrificing the benefits of any abatements to which the individual taxpayer might be entitled on account of business expenses, interest payments, losses, etc. It seems probable that where the income is all assessed at the source the taxpayer may obtain the benefit of the minimum exemption without making a declaration of income.

It appears, therefore, that assessment at the source does not, under this law, operate in such a way as to afford the taxpayer any substantial relief from the necessity of making a revelation of his income to tax officials. Whatever basis there may be for the common criticism or complaint that an income tax is inquisitorial remains under the operation of this law to nearly the same extent that it would if the tax were levied wholly and directly upon the recipients of the income, with no resort to taxation at the source.

Regarding the assessment of the additional tax not much need be said in the way of explanation. It is, in theory at least, a comparatively simple matter. There is no attempt here to make any application of the principle of collection at the source. The tax is all levied directly upon the recipients of the individual incomes, and the assessment is based upon the taxpayer's declaration, which for the purposes of this tax must cover the "entire net income from all sources, corporate or otherwise." The tax is thus largely distinct from the normal income tax as regards both the method of assessment and the rates. It is, however, to be administered through the same machinery, and no doubt to some extent the information obtained as to the sources of income in connection with the assessment of the normal tax will prove useful as a check upon the returns of income required for assessment of the additional tax. Every person whose income exceeds $20,000 will be subject to both taxes, the normal and the additional, but presumably will be required to make only one declaration. For the purposes of the additional tax he will be required to declare his income from all sources, and therefore any relief from the obligation of making a complete revelation of income which may be secured to him through the application of the principle of assessment at the source in connection with the normal tax will be entirely sacrificed.

The administration of a direct personal income tax—using that term to describe a tax levied directly on individual incomes—is a comparatively simple matter, however ineffective it may prove to be in reaching the income subject to it. Under this method of taxation it is easy to exempt a minimum, to apply progression in the rates, or to make any other adjustments that may be deemed equitable with reference either to the size or character of the income or to the circumstances of the taxpayer. But as soon as we depart from this simple method and resort to taxation at the source, we encounter difficulties in varying the rates, allowing exemptions, or making any similar adjustments. In the English income tax, these difficulties are squarely met and surmounted. As previously explained, that tax is in the first instance levied indiscriminately on all accessible sources of income and the adjustments are effected by refunding the tax collected at the source so far as may be necessary. No provision is made for forestalling the deduction of the tax, and no returns are required of the names and addresses of persons to whom payments of incomes are made. The exemption, however, is small ($800), and the abatements extend only to incomes below $3,500. Above that point the entire income is taxable.

A tax which provides for the exemption of $3,000 or $4,000 from every individual income places a formidable barrier in the way of a thoroughgoing application of assessment at the source. It is evident that with a universal exemption as high as this, a very large amount of tax withheld and collected at the source would ultimately have to be refunded. The law as enacted indicates an intention to secure in part the advantage of assessment at the source and at the same time avoid in part the attendant disadvantage of having to refund the tax. The measure might be characterized as one which as regards the "normal tax" applies the principle of assessment at the source to corporate income completely and to other income in spots. The "additional tax" is simply the direct personal tax. The normal tax will doubtless be successful in reaching the large amount of income earned or created by enterprises conducted under the corporate form of organization, much of which would probably escape assessment under a direct personal income tax. But beyond this it is questionable whether the method of assessment at the source as here applied will be of sufficient advantage to justify the administrative complications which it involves.

It seems useless, however, as well as unwise, to venture any predictions as to how successful the tax will be in reaching the income subject to it or how well it will work in actual practise. The law will doubtless require amendment in many particulars, even if it does not need to be radically revised. That the income tax in some form will be perpetuated as a permanent part of our system of national finance may safely be predicted. Properly adjusted and wisely administered, it should greatly strengthen the financial resources of the Government, make possible a closer adjustment of revenue to expenditure, and secure a more equitable distribution of the burden of taxation.



THE SECOND BALKAN WAR

GREECE AND SERVIA CRUSH THE AMBITIONS OF BULGARIA

A.D. 1913

PROF. STEPHEN P. DUGGAN

CAPT. A.H. TRAPMANN

The crushing defeat of Turkey by the Balkan States during the winter of 1912-13 had been accomplished mainly by Bulgaria. The Bulgarians were therefore eager to assert themselves as the chief Balkan State, the Power which was to take the place of Turkey as ruler of the "Near East." Naturally this roused the antagonism not only of Bulgaria's recent allies, Greece and Servia, but also of the other neighboring State, Roumania. Bulgaria hoped to meet and crush her two allies before Roumania could join them. Thus she deliberately precipitated a war which resulted in her utter defeat. From this contest Greece has emerged as the chief State of the eastern Mediterranean, a growing Power which at last bears some resemblance to the classic Greece of ancient times.

To understand this war, it should be realized that the Bulgars are really an Asiatic race, who broke into Europe as the Hungarians had done before them, and as the Turks did afterward. Hence their kinship with European races or manners is really slight, though they have something of Slavic or Russian blood. The Servians are near akin to the Russians. The Roumanians trace their ancestry proudly, if somewhat dubiously, back to the old Roman colonists of the days of Rome's world empire. The Greeks are really the most ancient dwellers in the region; and to their pride of race was now added a furious eagerness to prove their military power. This had been much scorned after their ineffective war against Turkey in 1897, and they had found no opportunity to give decisive proof of their strength during the war of 1912.

To Professor Duggan's account of the causes and results of the war, which appeared originally in the Political Science Quarterly, we append the picture of its most striking incidents by Captain Trapmann, who was with the Greek army through its brief but brilliant campaign.

PROF. STEPHEN P. DUGGAN

When the secret treaty of alliance of March, 1912, between Bulgaria and Servia against Turkey was signed, a division of the territory that might possibly fall to the allies was agreed upon. Neither Bulgaria nor Servia has ever published the treaty in full, but from the denunciations and recriminations indulged in by the parliaments of both, we know in general what the division was to be. The river Maritza, it was hoped, would become the western boundary of Turkey, and a line running from a point just east of Kumanova to the head of Lake Ochrida was to divide the conquered territory between Servia and Bulgaria. This would give Monastir, Prilip, Ochrida, and Veles to the Bulgarians—a great concession on the part of Servia. Certain other disputed towns were to be left to the arbitrament of the Czar of Russia. The chief aim to be attained by this division was that Servia should obtain a seaboard upon the Adriatic Sea, and Bulgaria upon the Aegean. Incidentally Bulgaria would obtain western Thrace and the greater part of Macedonia, and Servia would secure the greater part of Albania.

These calculations had been entirely upset by the course of events. Bulgaria's share had been considerably increased by the unexpected conquest of eastern Thrace, including Adrianople, whereas Servia's portion had been greatly diminished by the creation of an independent Albania out of her share. Moreover, M. Pashitch, the Servian prime minister, maintained that whereas by the preliminary treaty Bulgaria was to send detachments to assist the Servian armies operating in the Vardar valley, the reverse had been found necessary and Adrianople had only been taken with the help of 60,000 Servians and by means of the Servian siege guns. Equity demanded that the new conditions which had arisen and which had entirely altered the situation should be given consideration and that Bulgaria should not expect the preliminary agreement to be carried out. Now, from the outbreak of hostilities Bulgaria's foreign affairs, in which King Ferdinand was supposed to be supreme, were really controlled by the prime minister, Dr. Daneff. He proved to be the evil genius of his country; for his arrogant, unyielding attitude upon every disputed point, not only with the enemy, but with the allies and with the Powers, destroyed all kindly feeling for Bulgaria, and left her friendless in her hour of need. Dr. Daneff's answer to the Servian contention was that Bulgaria bore the brunt of the fight; that, had she not kept the main Turkish force occupied, Servia and Greece would have been crushed; that a treaty is a treaty, and that the additional gain of eastern Thrace in no way invalidated the old agreement.

The recriminations between Greeks and Bulgarians were quite as bitter. There had been no preliminary agreement as to the division of conquered territory between them, and this permitted each to indulge in the most extravagant claims. The great bone of contention was the possession of the fine port of Salonika. As soon as the war against Turkey broke out, both states pushed forward troops to occupy that city. The Greeks arrived first and were still in possession. Moreover, they maintained that, except for the Jews, the population is chiefly Greek. So are the trade and the schools. M. Venezelos, the Greek prime minister, insisted also that the erection of an independent Albania deprived Greece of a large part of northern Epirus, as it had deprived Servia of a great part of Old Servia, and Montenegro of Scutari. In fact, he asserted that Bulgaria alone would retain everything she hoped for, securing nearly three-fifths of the conquered territory, and leaving only two-fifths to be divided among her three allies; and this, despite the fact that but for the activity of the Greek navy in preventing the convoy of Turkey's best troops from Asia, Bulgaria would never have had her rapid success at the beginning of the war. Finally, he strenuously objected to the whole seaboard of Macedonia going to Bulgaria, as the population where it was not Moslem was chiefly Greek. All the parties to the dispute made much of ethnical and historical claims—"A thousand years are as a day" in their sight. The answer of Dr. Daneff to the Greek demands was to the effect that Greece already had one good port on the Mediterranean, while Bulgaria had none, and that Bulgaria would have to spend immense sums on either Kavala or Dedeagatch to make them of any great value. Moreover, as a result of the war, Greece would get Crete, the Aegean islands, and a good slice of the mainland. She had suffered least in the war and was really being overpaid for her services.

Behind all these formal contentions were the conflicting ambitions and the racial hatreds which no discussion could effectually resolve. Bulgaria was determined to secure the hegemony of the Balkan peninsula. She believed that her role was that of a Balkan Prussia, and her great victories made her confident of her ability to play the role successfully. To this Servia would never consent. The Servians far outnumber the Bulgarians. Were they united under one scepter they would be the strongest nation in the Balkans. Their policy is to maintain an equilibrium in the peninsula until the hoped-for annexation of Bosnia and Herzegovina will give them the preponderance. This alone would incline Servia to make common cause with Greece. In addition, she had the powerful motive of direct self-interest. Since she did not secure the coveted territory on the Adriatic, Salonika would be more than ever the natural outlet for her products. Should Bulgaria wedge in behind Greece at Salonika, Servia would have two Powers to deal with, each of which could pursue the policy of destroying her commerce by a prohibitory tariff, a policy so often adopted toward her by Austria-Hungary. M. Pashitch, therefore, was determined to have the new southern boundary of Servia coterminous with the northern boundary of Greece. Moreover, Greeks and Servians were aware of the relative weakness of the Bulgarians due to their great losses and to the wide territory occupied by their troops. The war party was in the ascendant in each country. The Servians were anxious to avenge Slivnitza, and the Greeks still further to redeem themselves from the reputation of 1897. Had peace been signed in January, there is little doubt that a greater spirit of conciliation would have prevailed. The Young Turks were universally condemned at that time for refusing to yield; but had they deliberately adopted Abdul Hamid's policy of playing off one people against another, they could not have succeeded better than by their determination to fight.

Even before the fall of Adrianople, on March 26th, military conflicts had taken place between Bulgarians and Servians and between Bulgarians and Greeks. On March 12th a pitched battle occurred between the latter at Nigrita; and though a mixed commission at once drew up a code of regulations for use in towns occupied by joint armies, not the slightest attention was subsequently paid to it. The Servians shortly afterward expelled the manager of the branch of the National Bulgarian Bank at Monastir, a step which drew forth emphatic protests from Sofia against the policy of Serbizing districts in anticipation of the final settlement. On April 17th, M. Pashitch informed Bulgaria that the Government would refuse to be bound by the terms of the preliminary treaty of March, 1912. From that date until the signing of the treaty of peace with Turkey on May 31st, the recent allies carried on an unofficial war, which consisted of combats of extermination marked by inhuman rage. After that event each of the combatants strained every nerve to push forward its armies and to possess new territories, while each continued to accuse the other of violating every principle of international law.

The ambassadors of the great Powers at the capitals of the Balkan States made urgent representations to the Balkan Governments to restrain their armies, but without effect. On June 10th the Servian Government dispatched a note to Sofia demanding a categorical answer to the Servian demand for a revision of the preliminary treaty. On July 11th the Czar telegraphed to King Peter and King Ferdinand appealing to them to avoid a fratricidal war, reminding them of his position as arbitrator under the preliminary treaty and warning them that he would hold responsible whichever state appealed to force. "The state which begins war will be responsible before the Slav cause." This well-meant action had an effect the opposite of that hoped for. In Vienna it was looked upon as an indirect assertion of moral guardianship by Russia over the Slav world. The Austrian press insisted that the Balkan states were of age and could take care of themselves. If not, it was for Europe, not for Russia, to control them. The political horizon grew still darker when one week later Dr. Daneff answered the Servian note in the negative. This resulted in the Servian Minister withdrawing from Sofia on June 22d.

What was the plan of campaign and the degree of preparedness of the principal belligerent in the second Balkan war which was about to commence? The plan of the Bulgarians was the only one whereby they could hope to secure victory. It depended for success upon surprizing the Servians by sending masses of Bulgarian troops into the home territory of Servia by way of the passes leading directly from Sofia westward through the mountains. This would cut off the Servian armies operating in Macedonia from their base of supplies and require their immediate recall for the defense of the home territory. It was an operation attended by almost insurmountable obstacles. The major part of the Bulgarian army was in eastern Thrace and would have to be brought across a country unprovided with either railroads or sufficient highways. Moreover, the army would have to rely for the transport of provisions and equipment upon slow-moving bullock wagons. Nevertheless, given time, secrecy, and freedom from interference, the aim might be attained. The necessary divisions of the army were set in motion in the beginning of May. So successful were the Bulgarians in keeping secret the route and the progress of the army, that by the middle of June they confidently looked forward to success. Their high hopes were destroyed by the evil diplomacy of Dr. Daneff in his relations with Roumania.

Russia rewarded Roumania for her splendid assistance in the Russo-Turkish war of 1877 by depriving her of her fertile province of Bessarabia and compelling her to take in exchange the Dobrudja, a low, marshy district inhabited chiefly by Bulgarians and Moslems. And that was not all. Through Russian influence the commission appointed to delimit the boundary between Roumania and the new principality of Bulgaria put the town of Silistria upon the Bulgarian side of the boundary. Now the heights of Silistria command absolutely the Roumanian territory opposite to it and the Dobrudja. The Danube directly in front of Silistria spreads out in a marsh several miles wide, so that it is impossible to approach Silistria from the Roumanian side by bridge. As a result Roumania has always felt that her southern border was at the mercy of Bulgaria and has always, as one of the chief aims of her national existence, looked forward to the rectification of her southern boundary. The unfriendly attitude of Russia threw Roumania into the arms of Austria, so that from the days of the Berlin treaty to the Balkan war, Roumania has been considered a true friend of the Triple Alliance. She viewed with jealousy and fear the rapid growth of Bulgaria in power and in strength. Crowded in between the two military empires of Russia and Austria-Hungary, Roumania naturally looked upon the development of another military state upon her southern border as a menace to her national existence. Hence when the Macedonian question became very acute in 1903, and it seemed that action would be undertaken by Bulgaria and Servia against Turkey, Roumania had declared that she would not tolerate an alteration of the status quo. She did not move, however, when the allies undertook the war of liberation in October, 1912. But when a month's campaign changed the war from one of liberation to one of conquest, Roumania demanded from Bulgaria as the price of neutrality Silistria and a small slice of the Black Sea coast sufficient to satisfy strategic military demands.

It was in his relations with Roumania that Daneff's diplomacy was most stupid. M. Take Jonescu, one of Roumanians ablest statesmen, was sent by the Government to the first Peace Conference at London to secure pledges from Dr. Daneff in regard to the Roumanian demand. He could get no answer. Daneff used every device to gain time in the hope that a settlement with Turkey would relieve Bulgaria from the necessity of giving anything. When the peace negotiations failed and the war between the allies and Turkey recommenced, the relations between Roumania and Bulgaria became very critical. However, at the Czar's suggestion, both countries agreed to refer the dispute to a conference of the ambassadors of the great Powers at St. Petersburg. Dr. Daneff, who represented Bulgaria, adopted a most truculent attitude and refused to yield on any point. As a result of the skilful diplomacy of the French ambassador, M. Delcasse, in reconciling the divergent views of the great Powers, Roumania was awarded, on April 19th, the town of Silistria and a three-mile zone around it, but was refused an increase on the seaboard. The award was very unpopular in Roumania, but M. Jonescu risked his official life by successfully urging the Roumanian Government to accept it. But when it became perfectly evident, after the signing of the Treaty of London on May 30th, that the former allies were now to be enemies, the Roumanian government notified Bulgaria that she could not rely upon its neutrality without compensation in the interests of the equilibrium of the Balkans.

Such was the diplomatic situation when the Czar's telegram of June 11th was received by King Ferdinand. Nothing could have been more inopportune for the Bulgarian cause. Though the government had no intention of changing its plan, sufficient deference had to be paid to the Czar's request to suspend the forward movement of troops. The delay was fatal. The Servians, who were already aware that the Bulgarians were in motion, now learned their direction and their actual positions. The Servian Government hastened to fortify the passes of the Balkans between Bulgaria and the home territory, and the Servian army in Macedonia effected a junction with the Greek army from Salonika. There was nothing left for the Bulgarians but to direct their offensive movements against the southern Servian divisions in Macedonia. The great coup had failed. Instead of attacking first the Servians and then the Greeks and overwhelming them separately, it was necessary to fight their combined forces.

Every element in the situation demanded the utmost caution on the part of Bulgaria. Elementary prudence dictated that she yield to Roumanians demand for a slice of the seaboard to Baltchik in order to prevent Roumania from joining Servia and Greece. No doubt, had Daneff yielded he would have been voted out of office by the opposition, for the military party was in the ascendant at Sofia also. But a real statesman would not have flinched. Seldom has the influence of home politics upon the foreign affairs of a State operated so disastrously upon both. It was determined to carry out that part of the original plan of campaign which called for a surprise attack upon the Servians. It must be remembered that all the engagements that had hitherto taken place between the former allies had been unofficial, Daneff all the while insisting that there existed no war, but "only military action to enforce the Serbo-Bulgarian treaty." Nevertheless, on June 29th the word went forth from Bulgarian headquarters for a general attack upon the Servian line which, taken by surprise, yielded.

In the mean time public opinion at Bucharest became almost uncontrollable in its demand for the mobilization of the troops, and the government was outraged at the continued prohibition by Russia of a forward movement. The Roumanian Government had already appealed to Count Berchtold for Austro-Hungarian support against Russian interference, but Austria-Hungary, like every other great power, expected Bulgaria to win, and she intended that Bulgaria should take the place vacated by Turkey as a counterpoise to Russia in the Balkans. Hence Count Berchtold informed Roumania that she could not rely upon Austro-Hungarian support, were she to ignore the Russian veto. But in the mean time an exaggerated report of the Servian defeat had reached St. Petersburg on July 1st, and to save Servia, Russia lifted the embargo on Roumanian action.

Forty-eight hours later Europe knew that the Greeks had fought the fearful battle of Kilchis, resulting in the utter rout of the Bulgarians, who were in full retreat to defend the Balkan passes into their home territory. Russia at once recalled her permission for Roumanian mobilization, but it was too late. The army was on the march.

The situation of Bulgaria was now truly desperate. Not only had her coup against the Servians failed, but her troops were fleeing before the victorious Greeks up the Struma valley. On July 5th war was officially recognized by the withdrawal of the representatives of Greece, Montenegro, and Roumania, from Sofia. On the same day Turkey requested the withdrawal of all Bulgarian troops east of the Enos-Midia line. In the bloody battles which continued to be fought against Greeks and Servians, the Bulgarians were nearly everywhere defeated, and on July 10th Bulgaria placed herself unreservedly in the hands of Russia with a view to a cessation of hostilities.

This did not, however, prevent the forward movement of all her enemies. On July 15th, Turkey, "moved by the unnatural war" existing in the Balkan Peninsula, dispatched Enver Bey with an army to Adrianople, which he reoccupied July 20th. By that time the Roumanians were within twenty miles of Sofia, and the guns of the Servians and Greeks could be heard in the Bulgarian capital. The next day King Ferdinand telegraphed to King Charles of Roumania, asking him to intercede with the kings of Greece, Servia, and Montenegro. He did so, and all the belligerents agreed to send peace delegates to Bucharest. They assembled there on July 29th and at once concluded an armistice.

Each of the belligerent States sent its best man to the peace conference. Greece was represented by M. Venezelos, Servia by M. Pashitch, Roumania by M. Jonescu, Montenegro by M. Melanovitch, and Bulgaria chiefly by General Fitcheff, who had opposed the surprise attack upon the Servians. The policy of Bulgaria at the conference was to satisfy the demands of Roumania at once, sign a separate treaty which would rid her territory of Roumanian troops, and then treat with Greece and Servia. But M. Jonescu, who controlled the situation, insisted that peace must be restored by one treaty, not by several. At the same time he let it be known that Roumania would not uphold extravagant claims on the part of Greece and Servia which they could never have advanced were her troops not at the gates of Sofia. The moderate Roumanian demands were easily settled. Her southern boundary was to run from Turtukai via Dobritch to Baltchik on the Black Sea. She also secured cultural privileges for the Kutzovlachs in Bulgaria. The Servians, who before the second Balkan war would have been satisfied with the Vardar river as a boundary, now insisted upon the possession of the important towns of Kotchana, Ishtib, Radovishta, and Strumnitza, to the east of the Vardar. With the assistance of Roumania, Bulgaria was permitted to retain Strumnitza. The Greeks were the most unyielding. Before the war they would have been perfectly satisfied to have secured the Struma river as their eastern boundary. Now they demanded much more of the Aegean seacoast, including the important port of Kavala. The Bulgarian representatives refused to sign without the possession of Kavala, but under pressure from Roumania they had to consent. But they would yield on nothing else. The money indemnity demanded by Greece and Servia and the all-around grant of religious privileges suggested by Roumania had to be dropped. The treaty was signed August 6, 1913.