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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Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Part III. Capital and income

Collection:: Economics Books

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

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