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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396 NATURE OF CAPITAL AND INCOME APPENDIX TO CHAPTER XIV §1 (ro Cm. XIV, § 3) When the Interest Rate varies, there are Two Rival Concepts of Standard Income. When the rate of interest varies during successive years, the standard of the comparison of income and capital requires re- statement. We found, when the rate of interest was assumed constant, that the standard income corresponding to a given capital was a perpetual and uniform flow, of which flow that capital was at any time the present value. Tt did not matter whether standard income Was conceived as income which was constant and perpetual, or as income which would main- tain its capital-value at a constant level ; for under the con- dition of a constant rate of interest, a constant income will necessarily maintain a constant capital-value. But when we introduce the possibility of a change in the rate of interest, these two concepts of standard income are no longer equiva- lent; under such conditions only an inconstant income will maintain a constant capital-value. Thus, if the rate of interest for the first year is 10%, for the second, 5%, and for the third, 69, etc., the income stream which will maintain the capital unimpaired will be, in successive years, proportional to the numbers 10, 5, 6, ete. A person possessed of $100 of capital can evidently earn with it $10 the first year and still have his $100 unimpaired, with which, in turn, he can earn $5 the second year and maintain the principal of $100; and again $6 in the third year, and so on, receiving each year an income proportional to the rate of interest. Relatively to this income stream considered as a standard of reference, the propositions stated in Chapter XIII will remain true, namely, that if the real income in any year exceeds the standard for that year, the capital will be impaired by the excess; and if the income falls short of the standard in any year, the capital will accumulate by the amount of the deficiency. But this concept of standard income is not the only legiti- mate one. We may, if we choose, employ the other definition of standard income, as a perpetual and uniform flow. In this

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