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

292 NATURE OF CAPITAL AND INCOME [Cmar. XVI houses in the average would be worth $10,000 each were it not for the risk of fire; in other words, that $10,000 is the capitalized value of the services to be rendered by each house, assuming that it lives out its natural life. The value of the total number of houses would then be $100,000,000. This is the “riskless value.” Tt is the capitalized value of the income which the 10,000 houses would bring in, were there no loss by fire. If interest is at 5 per cent, the income which is thus capitalized is $5000,000 a year. If now we suppose that the annual risk of fire is one chance in 200, there will be about 50 houses annually burned. Reckoning the value thus de- stroyed at an average of $10,000 for each house, there will be $500,000 annually lost by fire. We must now de- duct this from the $5,000,000, which would be the income were it not for fires. We have left $4,500,000, the capitalization of which is only $90,000,000. In other words, the total property of 10,000 houses is worth in “ mathematical value” $90,000,000 instead of $100,000,000, the reduction being because of the prospect of fires. If we suppose all of these houses to be owned by one corporation, this mathematical value of $90,000,000 might also be the actual value, for such a corporation could count on about 50 houses burning annually almost as a certainty. Each house would then be worth, on an average, $9000. But if such an individual house is owned by an individual person, this mathematical value would not be its ‘ commercial value,” on account of the element of caution. Let us say that the caution coefficient is §, in which case the house would be worth $7000. In other words, we have $10,000 as the “riskless” value of the house, $9000 as its “mathematical” value, and $7000 as its actual “commercial” value, assuming that there is not as yet insurance. Now if the owner of such a house could secure insurance on a purely mathematical basis of the risk, which, as we have seen, is one half of one per cent,

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