248 NATURE OF CAPITAL AND INCOME [Cuar. XIV

nan, who is usually a safe guide, makes an error at this
point. He states in his Elementary Political Economy: * —
“Jf a man has a cellar of port wine, or a plantation of trees, the
annual increment of the value of these things is evidently part of his
annual income. If he likes to spend it, he can do so without decreasing
his property. If he does not choose to spend it, he is engaged in a
form of saving and is thereby adding to his property.”

And again, in ““ What is Capital?”’? he states, The income
 is divided into two parts, (1) the increase of the
capital, and (2) the things enjoyed.”
That “saving” or increase of capital is not income coordinately
 with ordinary income is evident from the fact
that this item is never discounted in making up capital
value. As we have seen, one of the fundamental characteristics
 of income is that it is the desirable event which
occurs by means of wealth, and for the sake of which, consequently,
 that wealth is valued. This definition implies
that every item of income is discounted in order to obtain
its contribution to capital-value. The mere increase or decrease
 of capital-value, on the other hand, is never thus
discounted. Suppose, for instance, with interest at 4 per
cent, that a man buys an annuity of $4 a year, which
does not begin at once but is deferred one year. Since
this annuity will be worth $100 one year hence, its present
value will be about $96, which, during the ensuing year,
will gradually increase to $100. If this increase of value
of (about) $4 is itself to be called income, it should be
treated like every other item of income, and should be discounted.
 But this is absurd. The discounted value of $4
would be $3.85, which, if added to the $96, would require
that the entire value of the property to-day should be
$99.85, or practically the same as a year later instead of
$4 less as is actually the case. In other words, the hypothesis
 which counts an increase of value as income is
self-destructive; for if the increment is income, it must

2p.'59, 2 Economic Journal, Vol. VII, 1897, p. 284.