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. 8 INCOME ACCOUNTS 125 of bookkeepers in often entering capital at its cost value.” In fact it is sometimes said that “liabilities represent money received by a company, and assets, how it has been ex- pended.” But this is not strictly true. Since its market value depends on its suitability to the uses to which it is put, not on the money sunk in its construction, the house on which was expended $10,000 for construction may be worth more or less than $10,000. In this case the income account should contain $10,000 on the outgo side, and the capital account should contain a larger or smaller figure.! And yet it is undoubtedly true that we instinctively object to entering the cost of building the house in its income-and-outgo account; and we express this objection by calling this cost a “capital cost,” rather than a part of running expenses. By so classing it we mean that it does not recur, or, at any rate, only at long intervals. On this basis Wagner and others have erroneously claimed that income and outgo should be confined to “regular” items. At first glance this seems feasible because, in actual prac- tice, an extraordinary expense in a given year, like the cost of constructing a house, does not usually reduce the owner’s net income for that year by that amount. He will generally contrive to avoid such a result by offsetting the extraordinary expense of the house by a correspond- ingly extraordinary income from some other source, such as a depreciation fund. It is evident that the house owner ! Even in the normal case the value of the house, as is well known, is not exactly equal to the cost expended in construction, but to that amount plus interest. A house which costs $10,000, expended through six months, ought to be worth a few hundred dollars more than this sum at the time of completion; otherwise the man who expended those $10,000, and at completion has only $10,000 worth of house to show for it, has evidently received no interest on his money. The relation between the value bf capital, and its cost, and interest, will form a subject to be taken up in a later chapter, where the common error that accrued, but unpaid, interest is itself a cost will also be dis- cussed.

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