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 III. Capital and income

Collection:: Economics Books

234 NATURE OF CAPITAL AND INCOME [Car XIV ing from — 15 per cent in the first year to 100 per cent in the fifteenth year, and then zero forever after. At this juncture, however, the business reader may feel disposed to object. He will point out that in our tables the house is represented as yielding 5.4 per cent the first year instead of 5 per cent, by neglecting depreciation, and that, contrariwise, the forest was represented as yielding in the eleventh year 3.1 per cent instead of 5 per cent, by neglecting appreciation. For it is true that the house, worth $18,300 at the beginning of the year, must, under the given conditions, depreciate $35 during the year; and the objector will maintain that this ought to be deducted from the $1000 received from the house, in order to obtain the true “net earnings.” The deduction leaves $915, which is just 5 per cent on the capital of $18,300. According to this calculation, therefore, the house really returns, not 5.4 per cent, but only 5 per cent. And, applying the same line of reasoning to the case of the forest, the objector might insist that the forest increased in value just enough to make up the difference between the 3.1 per cent, which was given as the rate of value-return at the beginning of the second decade, and the 5 per cent to which it would seem to be entitled. These calculations are correct. But they do not mili- tate against the treatment of value-return which has been given. They merely bring into relief a distinction between income which is realized by, the investor and income which is earned by the capital. Realized income is the value of the actual services secured from the capital; earned in- come is found by adding to realized income the increase of capital-value, or deducting from it the decrease. We may designate them briefly simply as income and earnings. To illustrate this distinction and to show its importance, let us consider a four per cent $1000 bond, the interest on which is payable annually. From what was shown in the previous chapter it is clear that (if the bond is valued on a

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