NOVEMBER 9, 1927
FRANCO-ITALIAN relations are in the center of the European limelight once again. Just as France and Spain were about to renew their endless discussion of the question of Tangier, Mussolini sent a division of the Italian fleet there, to help the large Italian community celebrate the fifth anniversary of Fascism. Not unnaturally, the European press has been reminded of Kaiser Wilhelm's famous visit to Tangier in 1905, when he conferred with the Sultan's representatives and upset the Anglo-Franco-Spanish apple-cart, and relations between France and Italy are therefore, for the moment, rather more strained than usual. France has announced the signing of the long-deferred treaty of amity with Italy's quarrelsome eastern neighbor, Jugoslavia. This only gives formal recognition to an existing condition, and does not mean, as Paris propaganda asserts, that the position of France in southeastern Europe is stronger. On the contrary, it grows weaker, as we get farther from the treaties of 1919. Rumania, for example, is no longer completely in the French orbit, but is on excellent terms with Italy. The latter country's ambition for a greater share in the administration of Tangier has the backing of Great Britain, a fact which makes the Mediterranean question all the more delicate. No problem confronting European diplomacy is more important than this one, and none more clearly reveals the unregenerate, "pre-war" mood in which the chief nations conduct their foreign policies.
THE situation in China has degenerated into a series of duels between military leaders. In the north, the Manchurian General, Chang Tso-lin, is defending Peking successfully against Yen Hsi-shan, the "model governor" of Shansi province, with whom is allied, for the moment, Feng Yu-hsiang. In the south, the two centers of the Nationalist movement, Hankow and Nanking, are fighting one another. Canton is nominally allied with Nanking, but is a faint-hearted friend. It sends little money to the hard-pressed Nanking regime; and there is talk of a new grouping in which Canton would throw in its lot with Chiang Kai-shek, the erstwhile Nanking leader, who is now biding his time in Tokio, using that city as Central American revolutionists use New Orleans. Throughout China, trade is disrupted. Missionaries who have tried to return to the interior have been forced to flee again to the seacoast. It is not impossible that years may elapse before there is any material change for the better in conditions.
PRINCE CAROL of Rumania has decided that he wants the throne which he renounced long ago, when he was under the spell of the titian-haired Mme. Lupescu. Now he has broken with the lady, at least temporarily, and wants to take the crown from the unlucky little six-year-old King Michael. Seemingly, he has a good chance of success. A large part of the army is with him, and the National Peasant party favors his candidacy. Reprehensible as it may be, we cannot Avork up much interest in the Rumanian revolution, despite the importance of its possible consequences. Years ago there was a saying at Monte Carlo, "Whether black or red comes up, white [Blanc—the name of the Casino's owner] always wins." Whether Carol or the Bratianos are on top in Rumania, the peasants, and the millions of Jews and other oppressed minorities, are fairly certain to find that their lot continues as hard as ever.
RUSSIA has decided to take part in the coming meeting of the League's Preparatory Commission on Disarmament, in which the United States and all the leading European nations will also be represented. The fact is not of much importance so far as limitation of armament is concerned: the experience of last spring showed that there is little hope of substantial reduction at the present time. It is of importance, however, as indicating Russia's desire to cooperate with the West at least to some extent: by staying out of the conference she could have strengthened the likelihood that it would fail. Her willingness to come in is, no doubt, partly because she doesn't want the powers she regards as unfriendly to meet without her; but it likewise confirms the impression, derived from other evidence, that for the present her outlook is toward the West, not the East, and that she is prepared to go a considerable distance to placate Europe.
BECAUSE Secretary Mellon has for the past few years underestimated the Treasury surplus, the Democrats assume that he is now doing so again, and consequently that a larger tax cut than he recommends can be made. But it would be just as logical to infer, merely on the basis of probable fluctuations in prosperity, that, because previous estimates have been too small, an estimate some time in the near future will turn out to be too large. Inspection of Secretary Mellon's figures just presented to Congress strengthens this impression. The estimate for the fiscal year 1926 was too low, because, in spite of the sweeping cut in rates and increase of exemptions, the yield of income taxes increased. This was due to the unwontedly large profits of 1925. The estimate for 1927 actually counted on a higher yield from income taxes than resulted. The large surplus of last June arose rather from the fact that the collection of back taxes was larger than expected, and settlement of war accounts with the railroads brought in more than was hoped for, while expenditures were less than the budget estimate. Nobody can deny that collection of back taxes, dating largely from the high rates and less experienced administration of the war period, is likely to shrink, or that settlements with the railroads will soon be completed. On the other hand, Mr. Mellon's estimate of yield from the corporation and personal income taxes is no smaller for the fiscal years 1928 and 1929 than for 1927. Yet everybody knows that profits have recently been shrinking in important industries, such as automobiles, steel and oil, while stocks, terminating their spectacular rise, have turned downward. Even if no surplus is desired, it would be well not to reduce taxes too much this year.
SOME of Mr. Mellon's arguments on the nature of the specific cuts to be made again reveal the social limitations of his tax philosophy, which lead him into economic and statistical fallacies. He wants the corporations' income tax reduced. Therefore he lumps their local and state tax-payments with their federal income-tax and makes the striking calculation that, in 1924, "24.58 percent of their net income Avas paid in taxes." Of course, property taxes, which make up the largest bulk of local and state taxation, are not paid out of net income. They are properly an expense. In a peeuliar sense they constitute a payment for services rendered, services which the activities of the eorporation demand—such as fire and police protection, water systems, highway building and maintenance, and so on. With just as much logic, Mr. Mellon might have lumped the corporations' expenses for materials and labor with their income taxes and stated that the total equals several hundred percent of their net income. And just as the Secretary fails to distinguish between property and income taxes, so he fails to distinguish between the tax on the net income of corporations—in reality a profits tax—and the tax on the income of individuals. Because the rate levied on corporate net income is higher than the rate levied on all but a comparatively few individual incomes, he says there is discrimination against dividend receivers. But, as far as the individual is concerned, the dividend yield is clear gain, sufficient to have induced him to invest his money in the corporation, regardless of the tax on its profits (unless he has calculated badly). Complaint against any "discrimination" involved must be highly metaphysical.
ALTHOUGH we are deeply moved by the effort to repeal the automobile-sales tax, the Secretary's argument in favor of the tax also fails to make necessary distinctions. The railroads, he says, are heavily taxed, and part of their taxes go to roads, which furnish a means of competition for busses, trucks and private automobiles. The latter should, therefore, be taxed also. One might begin by asking how many passengers and tons of freight do not get to and from railroad stations by means of roads. But the main point is that a sales or consumption tax, such as that on automobiles, cannot fairly be compared with such property, franchise and income taxes as railroads pay. Do not those who operate busses and trucks for profit have to pay property and income taxes, either as companies or as individuals, just as the railroads do? And do not individual automobile owners have to pay property taxes and license fees? There is no more reason for a sales tax on automobiles than for a sales tax on locomotives and railroad cars. Sales taxes are indeed productive of revenue and are fairly easy to collect, but socially they are inferior to income taxes, because they cannot be adjusted at progressive rates so that the tax burden will be principally borne by those who can best afford to bear it. As for the Secretary's opposition to the estate tax, we have dealt with this subject in a separate column.
THE outcome of the Fall-Sinclair trial is still in doubt, as this issue of the New Republic goes to press, with serious threats of a mistrial. But whatever happens, there can hardly be any division of opinion as to the character of the exhibition it has afforded in its first fortnight. We agree with the New York Times when it says that
the spectacle of a fonner member of the Cabinet, when charged with conspiracy and corruption, hiding behind every legal technicality, and refusing, along with his son-in-law, to testify lest in the act he incriminate himself, is one to make us blush and hang our heads if we have not lost the power of moral reprobation together with national pride.
Ex-Secretary Fall continues to protest his innocence. But why does he not thus demand that every record be brought to light, every secret transaction uncovered, every witness heard? . . . He has forever condemned himself in the eyes of his fellow countrymen. Their sense of disgrace is far deeper than anything political or personal. It goes to the very substance of our national dignity and repute.
We commend these words to the attention of those newspapers, including nearly the whole of the Republican press and some conservative Democratic journals, which consistently belittled the Walsh investigation from the beginning, and did all they could to create a public opinion which would either force it to halt, or negate its results. To a considerable degree they were successful at that time. Are they proud of their accomplishment?
APPARENTLY one of the most solid and spirited coal strikes of recent history is occurring in Colorado, under the leadership of the L W. W. Thus again is read the old lesson that the attempt to substitute a company union for a legitimate labor organization does not necessarily pacify the workers, but may lead to trouble under more radical leadership than that of the American Federation of Labor. For it is well known that the chief coal producer in the district—the Rockefeller-owned Colorado Fuel and Iron Company—has long operated on an open-shop basis, with an employees' association of its own. The United Mine Workers of America, the A. F. of L. organization, may also learn from this strike the lesson that it is sometimes possible, with spirited leadership, to organize fields where the employers have placed in the way of the union every possible obstacle of legislation, court authority, police and competitive "welfare work." The most aggressive possible effort to organize the non-union fields must accompany the union's new and admirable policy of cooperation with employers in the union fields to reduce costs without infringing on labor standards. The attempt of the courts to forbid such organization, through injunctions based on the anti-trust laws, calls for a most vigorous challenge on the field of action. It Avould be disastrous for all concerned if the responsible and intelligent unions, succumbing to judicial suppression, should make way for irreconcilable and destructive labor organizations.
THOSE business commentators who always hope for the best are expecting the automobile business to revive when the new Ford car appears. Basing their speculations on the fact that the total decline in car production is only slightly larger than the decline in the output of Fords, they look for a large enough demand for the new car, by those who have been waiting for it, to bring back the total to normal. Light on this question shines from a recent report of the Philadelphia Reserve Bank on automobile sales in its district during September. Total registrations for the first six months of the year increased 7.4 percent in Pennsylvania over the same period of last year, while the average increase for the country was 7 percent; therefore the record for this district is not likely to be exceptionally low. In September, the wholesale sales of new passenger cars in the Philadelphia reserve district decreased 11.9 percent from September, 1926; retail sales decreased 3.4 percent; sales of used cars increased 47.16 percent; and retail sales on the instalment plan were 19.8 percent less than a year ago. At the same time, stocks of new cars on hand increased 35.2 percent over a year ago, and of used cars, 35.6 percent. All this is little short of alarming for the automobile industry. How many purchasers are waiting for the new Ford? Presumably, not those who buy in the price class of $1,000 to $2,000, yet this class showed the largest drop of wholesale sales from last year—22.3 percent. On the other hand, stocks of new cars under $1,000 showed the largest increase over a year ago—109 percent. If these cars are not now being absorbed as fast as they have been produced, what will be their chance when the new Ford comes out? It is difficult to extract much hope from these figures.
THE New Republic congratulates the New York Herald Tribune on having appointed Mr. Thomas F. Millard its Far-Eastern correspondent. Mr. Millard, as our readers do not need to be told, is one of the ablest journalists ever to choose the Orient as the scene of his activities. His despatches to the New York Times, over a long period, constituted a landmark in wise and fair reporting; and when that journal supplanted him last winter by such a strongly anti-Chinese individual as Mr. Frederick Moore, the New Republic felt a regret which the subsequent record, set forth in our pages, shows, we feel, to have been justified.
ALL sorts of morals are being drawn, by the daily press, from the acquittal of Schwartzbard, tried in a Paris court for the admitted murder of Petlura, ex-President of the Ukraine, who was guilty of some of the cruelest pogroms in modern history. We think most of these morals are unjustified. The Paris jury simply decided that Schwartzbard's act deserved to be regarded as a political crime, not as an ordinary murder, and that Petlura deserved to die. Juries in France, as in America, have a habit of overriding the law to reach an end which they regard as fair, just as they will sometimes find men guilty of crimes they have not committed, in order to express a dislike for these men based on other grounds. In this case, the world in general agrees with the jury, and will not be disposed to question the verdict too closely. The Jews have been solemnly warned not to make Schwartzbard into a racial hero; but the warning is idle. It asks far too much of human nature, to require them to accept this as an ordinary trial.