The nature of capital and income

Bibliographic data

Monograph

Identifikator:: 102659555X

URN:: urn:nbn:de:zbw-retromon-82920

Document type:: Monograph

Author:: Fisher, Irving http://d-nb.info/gnd/118533541

Title:: The nature of capital and income

Place of publication:: New York

Publisher:: The Macmillan Company

Year of publication:: 1923

Scope:: XXI, 427 Seiten

Digitisation:: 2019

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Part II. Income

Collection:: Economics Books

SEc. 5] INCOME 111 far as popular usage goes, it gives its sanction to the use of the term “income” in the one sense quite as much as in the other, though usually with very little intelligent diserimi- nation between the two. For instance, a life annuity from an insurance company, or a pension from a government, is universally recognized as ‘“‘income.” Yet this income trenches on the capital which produces it, eating it up year by year until, at the end of its allotted period, it is entirely exhausted. Let us suppose that the annuity is one of $1000 a year for twenty years. Reckoning interest at five per cent, such an annuity is worth, by the actuaries’ tables, $12,462. That is, the annuitant could sell his annuity, on a five per cent basis, for $12,462 in ready money. But this $12,462 invested at five per cent would bring in, with- out impairing the principal, not $1000 a year, but only $623.10. If then he actually gets $1000 he is trenching on his capital the first year to the extent of $376.90. Yet we regard him, and very properly too, as having a true income of $1000 a year. If it were true that income could never trench on capital, we could not reckon a laboring man’s wages as income without first deducting a premium or sinking fund sufficient to provide for the continuance of this income after the de- struction by death of the laborer. If the annuitant or laborer should actually set aside such an annual sum as to maintain the capital value of his property unimpaired, we should be quite justified in considering the net sum, and not the gross sum, as income. The $1000 annuitant who pays $376.90 annually into a sinking fund is getting only $623.10 annually, not $1000, for an income, and the laboring man who pays an insurance premium reduces his income by that amount. It surely makes a difference whether these “sinking funds” or “premiums” are actually set aside or merely reckoned. To reckon what one ought to save in order to maintain capital is not to save 1t, and a definition of income which depends upon an ideal

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