EDWARD S. MASON 163 



duction is subsidized by tariff protection and farmers whose prices are 

 supported by government action are equally vehement in rejecting the 

 term "subsidy." In partial support of this attitude it must be admitted 

 that it is excessively difficult to lay down any general operational defi- 

 nition that would permit us easily to distinguish subsidized from un- 

 subsidized economic activities.^ In the tax area the key notion is more 

 favorable treatment for a particular group than is accorded to other 

 taxpayers — farms or households — in the same class. But what is the 

 same class? For mineral producers the question would appear to be 

 whether percentage depletion is more favorable treatment than is ac- 

 corded to, say, manufacturers through depreciation allowances lim- 

 ited to the cost of their assets. This raises a central question of natural 

 resource economics here at issue. Are the conditions of mineral dis- 

 covery and production so different from other types of production as 

 to require special analysis and special treatment? 



It is certainly not possible to determine the existence or extent of 

 mineral subsidy by looking at the returns to factors employed. If our 

 competitive system works the way it should, the effect of a subsidy to 

 mineral production would be to expand investment and output — thus 

 bringing down mineral prices — to the point at which the yield in 

 mineral investments, taking full account of risks, is approximately 

 equal to yields elsewhere. The objective test of the subsidy would pre- 

 sumably lie in a comparison of the current amount of investment and 

 output with what they would have been in the absence of a subsidy. 

 This, obviously, is a difficult comparison to make.*^ 



In the special case of oil, the subsidy element in percentage deple- 

 tion does not lead necessarily to an expansion of output since the 

 Texas Railway Commission is always there to "adjust supply to de- 



8 Cf. Carl Kaysen, "On Defining a Subsidy" in Public Policy, a yearbook of 

 the Harvard Graduate School of Public Administration, IV, 1953. 



9 But Arnold C. Harberger, comparing the relation between investment and 

 value of output in the mineral, as against other industries, concludes that tax 

 incentives "lead to a situation in which it takes $2 million of capital invested 

 in mineral exploration to produce as much product as $1 million of capital 

 invested in other industries." This would be possible only if the government 

 bears a substantial part of the investment cost in the form of tax abatement, 

 i.e., subsidy. Cf. Arnold C. Harberger, "The Taxation of Mineral Industries" 

 in Federal Tax Policy for Economic Growth and Stability. Joint Committee of 

 the Economic Report, 84th Congress, 1st Session, 1955. 



