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

Sec. 4] EARNINGS AND INCOME 235 four per cent basis) the value of the bond will oscillate between $1000 and $1040, rising gradually from the former to the latter between interest payments and falling back suddenly as each payment is made. The income is simply the payment of $40 at the end of each year. Even our objector will not deny this. During the entire year up to the very end there is no income at all; yet the bond “earns” about $10 each quarter, in the form of an increase in the value of the bond. These earnings are simply equal to the interest on the capital. And so in general, when we assume that income is definitely foreknown, earnings will equal the interest on the capital. It is, therefore, to earnings that accountants instinctively give their main attention. But they err grievously when they attempt to spirit away realized income and put earned income in its place. Realized income plays the more important role, for on it depend all the other elements, — capital-value, value- return, depreciation, and even earnings themselves. To take the case of the house, the first and primary fact is that it promises to yield $1000 a year for fifty years. This income series being given, it is possible to obtain its capital-value by the discounting process; its value-return, by division of income by capital ; its depreciation, by comparing its capital values at successive dates; and its earnings, by deducting depreciation from realized income. Unless the realized income be given at the start, all these calculations are im-. possible. Earnings could not serve as our starting point, for earnings cannot be calculated except by the aid of de- preciation, depreciation cannot be calculated except from capital-value, and capital-value cannot be calculated except from expected realized income. Moreover, the fundamental proposition of the last chap- ter, that capital-value is the discounted value of expected income, will cease to hold true, if by income we mean earnings. Thus, the house has a capital-value of $18,300, which is the discounted value of its realized income of

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