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

Sec. 5] EARNINGS AND INCOME 237 compare other incomes with it. Consider, for instance, the possessor of a property yielding $100 a year for 14 years. He will, if he discounts this income at 5 per cent, value that property at $1000. He thinks of himself as possessing $1000 “invested in” that property. From it he gets the income of $100 a year for 14 years. But he knows that he might sell this property for $1000 and reinvest in another property yielding the standard $50 a year forever. Con- trasting with the standard income of $50 a year forever which he might receive, the income of $100 a year for 14 years which he does receive, we observe that at first his in- come is double the earned or standard income, being $100 instead of $50. The excess of $50, however, is compen- sated for by a reduction of $50 in the capital-value of his property, for at the end of the first year the value of his property will be the discounted value of $100 a year for thirteen (instead of fourteen) ‘years, which, if interest is still reckoned at 5 per cent, is $950. And so it is in general that the owner of $1000 invested at 5 per cent can obtain a higher income than the standard $50 only at the cost of trenching on capital to the extent of the excess. Suppose, on the contrary, that the $1000 is invested at 5 per cent, but in such a form as to yield at first less than $50, e.g. in a form which yields the above-mentioned in- come of $25 a year for 10 years, followed by $167.50 a year for 10 years. In that case, during the first year the owner receives only $25 instead of $50, which is the earned or “standard” income. But the deficiency of $25 in his in- come is made up by an augmentation of his capital by that amount. The principle is perfectly familiar to require a rigorous is no difficulty in framing one. (1) When a property yields a and is valued by discounting specified rate of interest, if the income r general, and perhaps too lemonstration, though there We may therefore state : — specified foreknown income, that income according to a ealized is equal to

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