hence no likelihood of a federal tax law interfering with the states, except where it is the well-considered opinion of a majority of all the states that the interests of any particular state ought to be subordinated to the welfare of the whole. In other words, while the federal government would, without the restrictions which the supreme court has read into the constitution, have no protection against hostile action on the part of state legislatures, the state governments have, from the very nature of the case, a far greater measure of protection against the acts of Congress.

It must, moreover, not be overlooked that all sound constitutional interpretation should keep pace with the changing needs of political and social life. The conditions which existed when the constitution was framed are no longer existent. At that time the political and economic interests of the separate states were so distinct and the sense of state sovereignty was so strong that it was only with extreme difficulty that a federal government was established at all. During the last century, however, the development of the underlying economic and social forces has created a nation, and this development calls for uniform national regulation of many matters which were not dreamed of by the founders. In all the federal states which have been created during the nineteenth century, under the influence of these newer economic forces, in Canada, in Germany, in Australia and in South Africa, we find no such problems as those which vex us, because of the greater authority initially granted to the central government. In Canada, for instance, we find just the reverse of our system. With us all powers not expressly conferred upon the federal government are reserved to the states or to the people; in Canada the powers not expressly conferred on the states or provinces are reserved to the federal government. It is idle to say that this centralization of powers, where centralization is needed, is injurious either to democracy or to self-government. There is at least as much true democracy and as much real self-government in Canada and in Australia as there is in the United

States.

Let us not make a fetich of "self-government," and let us not oppose central authority in those cases where selfgovernment means retrogression rather than progress.

The supreme court of the United States has already been influenced by these considerations. In the case of Veazie Bank vs. Fenno1it was held that a federal tax on state banknotes was valid, because of the necessity of upholding a national system of currency. In the recent and very important case of South Carolina vs. United States 2 it was held that a federal tax on a state dispensary was constitutional. On the other hand, it is certain that the supreme court would never uphold the validity, without the express consent of Congress, either of a state tax on national bank-notes or of a state tax on a federal business or a federal monopoly. In other words, we are gradually working out, in detail, the distinction that Marshall formulated many years ago in McCulloch vs. Maryland: "The difference is that which always exists and always must exist between the action of the whole on a part and the action of a part on the whole." Sooner or later it will be realized that this distinction applies also as between a state tax on federal bonds and a federal tax on state bonds. Sooner or later we shall outgrow many of the notions of extreme individualism and of exaggerated state rights which dominated the country at the time of the formation of the constitution. They are bound to disappear in the United States as they have disappeared in every other great federal republic.

If this political argument does not appeal to those who are still enmeshed in the web of extreme individualism and exaggerated state rights, there remains another argument of an economic character which is of decisive importance. Even though we assume that from the political point of view no distinction ought to be made in the matter of taxation between the state and the national government, it is susceptible of proof that valid economic reasons will justify the distinction between a general state tax on federal bonds and a general 18 Wallace, 533 (1870). 2 199 U.S., 437 (1905).

federal tax on state bonds. The general state tax to which allusion is made is the general property tax. The general federal tax to which allusion is made is the general income tax. Now a state tax on government bonds, as part of a general property tax, not only is unconstitutional but ought always to remain unconstitutional. State A, which imposes the tax in question, would, of course, from the very nature of the case, tax all other moneyed capital as well as the capital invested in federal bonds. But its neighbor, state B, might see fit not to impose a general property tax. There are several states in the Union which to-day do not impose a general property tax. Or, even if state B imposed a general property tax, its methods of assessment might be so lax that it would not reach all other moneyed capital. Consequently, if state A included government bonds in its taxable general property and actually assessed the bonds, the bonds would undoubtedly be affected in value through the lack of uniformity in the various states. The power of the general government to borrow money might thus be seriously impaired, and this risk would, beyond cavil, constitute a sufficient reason for withholding the power from the states. On the other hand, if the federal government were to impose a general income tax which, under the very terms of the constitution must, as we shall see, necessarily be uniform throughout the country, the income from state bonds would be reached in precisely the same way as the income from all other moneyed capital; and, as we have abundantly shown above, there would be no alteration in the value of the bonds, and therefore no influence exerted on the power of the states to borrow.

The supreme court of the United States went off on a wrong tack, not in the case of Dobbins vs. Commissioners in 1842, but in the case of Collector vs. Day in 1870. The cases, from the economic point of view, were not on a parity. Had Collector vs. Day presented a situation like that in McCulloch vs. Maryland, i.e., had it been a question of an exclusive federal tax comparable to the exclusive state tax, the economic basis of the argument would have been the same. But when

Collector vs. Day attempted to apply by inversion Dobbins vs. Commissioners, - when, in other words, a general federal tax was declared equivalent to a general state tax, the judges were misled by a superficial analogy which had no basis in economic fact. In the same way the supreme court erred when, in deciding the first Pollock case, it thought that it was applying the principle involved in Weston vs. Charleston. Weston vs. Charleston dealt with a state tax on federal securities; the Pollock case involved the question of a federal tax on state securities. As we have seen, the economic conclusions which apply in the one case do not apply in the other.

In the long run, however, the economic interests of a community must prevail; for law is nothing but the crystallization of economic and social imperatives. Sooner or later, therefore, the underlying fallacy in the more recent decisions of the supreme court will be recognized by the court itself, or the mistake will be corrected by constitutional amendment. The law cannot permanently lag behind the economic truth.

Entirely apart, therefore, from any legal or political considerations that might be invoked, an economic analysis shows clearly that the inclusion of state bonds under a general federal tax is a very different thing from the inclusion of federal bonds under a general state tax. Since the economic results are or may be so entirely different, the legitimacy of the action of the respective governments is entirely different. From the economic point of view the states ought not to have the right to tax the bonds of the federal government at all; but the federal government might well be justified in including state bonds in a general income tax. Hence, even if the constitutional amendment were to have the legal consequences which are predicated of it, it ought still to prevail, in order to subserve the best economic interests of the whole country.

§ 5. The Question of Uniformity

There remains one other point which deserves a word of comment. This refers to the question of uniformity. It

might be claimed, and in fact it has been claimed, that under the proposed amendment there will be no assurance of uniformity, for the constitutional provision as to uniformity specifically applies only to "all duties, imposts and excises." Since the amendment, while changing the method of levying the income tax, in so far as it has been held to be a direct tax, leaves unaltered its nature or appellation as a direct tax, it might be contended that the income tax as a direct tax is not necessarily subject to the constitutional inhibition as to uniformity.

The con

This contention, however, is clearly erroneous. stitution gives a double classification of taxes - one according to their nature, the other according to the mode of levy. According to their nature, taxes are divided into the four classes of direct taxes, duties, imposts and excises. According to the mode of levy, however, taxes are divided into two classes only those subject to the rule of apportionment and those subject to the rule of uniformity. If, now, the income tax is by constitutional amendment taken out of the first category, it necessarily falls into the second. There is no third category into which it could fall. To assume that an income tax could be levied without uniformity would be to make of the tax neither fish nor flesh to keep it, as it were, suspended in mid-air between the two solid posts of apportionment and uniformity. These are the only methods contemplated by the constitution. Every tax, no matter what its application, must be levied in one of these two ways. If the one way is barred by the constitutional amendment, it must necessarily be levied in the other way. To assume that under the amendment we could have anything but a uniform income tax would be to do violence to every rule of constitutional construction.

Chief Justice Fuller, in the first Pollock case, makes this clear. He says: "Although there have been from time to time intimations that there might be some tax which was not a direct tax nor included under the words 'duties, impositions and excises,' such a tax for more than a hundred