216 NATURE OF CAPITAL AND INCOME [Cumar. XIII 
The original investment is the discounted value of expected 
receipts; the final “returned” principal is simply one (the 
largest one) of those receipts. The only difference between 
this large receipt and the other smaller ones is that, usually, 
it is employed differently when received. It is usually 
reinvested in other long-time securities, whereas the smaller 
items of income, the so-called “interest,” are spent for arti- 
cles of shorter duration, and, thereby, soon converted 
into true “final income.” The “principal” and “interest,” 
therefore, while both are income with reference to the bond 
considered by itself, are apt to lead to different results when 
followed into the final transformations of purchase and 
sale, by the debit and credit cancellations previously ex- 
pounded. If we suppose a five per cent bond to be always 
sold on a five per cent basis, and the principal to be always 
reinvested in the same kind of security, it is evident, in 
relation to the whole series of operations, including the rein- 
vestment, that the principal, though income, is immediately 
canceled by reinvestment as outgo. In other words, 
whenever it appears as income from one bond, it 
immediately disappears again as outgo for another; con- 
sequently the owner is virtually in possession of a per- 
petual annuity of $5 a year. It is with a view to such an 
operation that the final payment of $100 on a bond is in- 
stinetively regarded on a different footing from the other 
payments called “interest.” It is called “ principal” on 
the theory that it is to be reinvested in order to continue 
the annuity of $5. It thus in theory represents capital, 
whereas the other payments represent only income. But 
we see now that both are income received from the bond 
as a source of income, although either may, by reinvestment, 
be put into capital. That one of them is usually put back 
into capital and the other not, is a matter of subsequent 
history and does not affect the immediate study of the 
bond itself. : 
Even when the “principal” received at the maturity of