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

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Document type:: Monograph

Structure type:: Chapter

Title:: Part III. Capital and income

Collection:: Economics Books

194 NATURE OF CAPITAL AND INCOME [Cmar. XII readily to mathematical transformations. The first, on the other hand, is the most frequently used in practical computations. §3 We have considered the rate of interest as the price of capital in terms of income. If we consider reciprocally the price of income in terms of capital, we shall have what is called the “rate of capitalization.” It is measured in years, namely, the number of years during which there would flow an amount of income equal to the capital. Thus, if $25,000 will buy a perpetual annuity of $1000 a year, the rate of capitalization is “ twenty-five years’ purchase.” The concept of ‘years’ purchase” is common in England as applied to land rents. It is evidently interconvertible with the rate of interest. A rate of interest of four per cent indi- cates a ‘years’ purchase” or rate of capitalization of twenty-five years. A rate of interest of two per cent indicates a rate of capitalization of fifty years. The rate of capitalization has thus as many meanings as the rate of interest, according as the income is payable annually, semi-annually, quarterly, etc., or continuously. § 4 The concepts of interest which have been given depend upon the concept of a perpetual annuity. But they can be made to apply also to terminable annuities. Thus, $10,000 may yield at four per cent an income of $400 a year for ten years, at the expiration of which time the $10,000, or the “original loan,” is returned. In such a case the loan may evidently be regarded as a purchase and resale of a perpetual annuity. A perpetual annuity of $400 is, for the price of $10,000, diverted to the lender’s benefit, and at the end of ten years is restored to the borrower for the same sum. We may regard in this light even short-time loans. Thus,

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