tr 
no 
= 7 v . ? 
= Biblic nek 
to hand it back, it must, in consistency, be charged as “ue 
and the net result on his income is simply a cancellation. hig 
procedure reveals clearly the fact that the accumulation is not 
income. It is increase of capital. All of this is elaborated in my 
paper, “Are Savings Income!”*, and illustrated by diagrams. 
DEPRECIATION IS NOT OUTGO 
Not only do many people thus wrongly include savings in in- 
come but they also often exclude from income any trenching on 
capital “spent”, i. e., used as income. 
If it were true that income could never trench on capital, we 
could not reckon a laboring man’s wages or a pensioner’s annuity 
__ each a terminable series—as income without first deducting a 
premium or sinking fund sufficient to provide in perpetuity for the 
continuance of the income after the death of the laborer or pen- 
sioner. For the capital value of a terminable annuity must de- 
preciate. If the annuitant or laborer should actually set aside 
such an annual sum as to maintain the capital value of his prop- 
erty unimpaired, we should be quite justified in considering the 
net sum, and not the gross sum, as income; for then the reinvest- 
ment actually enters our books as a cost item. But it surely makes 
a difference whether these “sinking funds” or “premiums” are 
actually paid or merely reckoned. 
Bookkeeping depreciation is not outgo. The repairs or better- 
ments for which the depreciation is supposed to provide are the 
true outgot. But, for practical convenience, depreciation may be 
presumed to be the graduated annual equivalent of the occasional 
repairs, replacements or betterments for which that depreciation 
is designed to provide, a sort of “accrued” repairs. Similarly 
“accrual” may be a practical convenience as a sort of average of 
actual income. 
* Publications of the American Economic Association, April, 1908. I suspect that a 
subtle confusion between physical capital (“stock”) ‘and capital value underlies some 
of the errors in treating savings. Savings is primarily a value concept but many 
think of it rather as physical accumulation. Others would apparently distinguish be- 
tween what they think of as physical saving and mere appreciation of value. A stock 
or bond appreciates in value because of prospective income but that does not seem to 
these people to be savings analogous to the rolling up of a savings bank account and 
still less analogous to the acquisition of a new farm or the erection of a new factory, 
or the increase in value of a growing forest. 
But these are ‘distinctions without a difference” so far as the present problem is 
concerned. This will be understood by any careful reader of my Nature of Capital and 
Income, or Rate of Interest, or Bbhm-Bawerk’s Capital and Interest, or Positive 
Theory of Capital. In every case the essential element is not physical growth but the 
appreciation of some discounted value. 
+ From what has been said it should he clear that savings or capital appreciation do 
not add to net income nor capital depreciation subtract. During a year a man may 
have $50,000 income and $150,000 accretion of capital but the total gain, or earnings, 
of $200,000 is not all income any more than all capital. 
11