250 NATURE OF CAPITAL AND INCOME [Cuar. XIV

that of the second and third would be quite different: the
income of the second would be $500 the first year, for during
that year his capital increases from $10,000 to $10,500;
it would be $525 the second year, during which his capital
 increases again from $10,500 to $11,025, and so on,
until in 15 years he is receiving an income of $1000 a year.
The third brother, during the first year, uses $2000; but
as his interest is only $500 he is forced to take $1500 out of
capital. This is, in our view, true realized income. But according
 to the theory which we are criticising, this depreciation
 of $1500 would have to be deducted from the $2000
which the spendthrift actually enjoys, in order to compute
his net income. The net income would thus be only $500,
or the interest on his original capital. At the beginning
of the second year, this spendthrift brother would possess
a capital of $8500, the “income” of which would, by the
same theory, be 5 per cent on $8500, or only $425. Following
 similar reasoning to the end we find that the so-called
“income” would progressively diminish until, in the sixth
year, it would be only $90. The capital then having been
entirely destroyed, no income would remain. It would appear
 from all this that the spendthrift had received from
the original $10,000, during the six years of its life, a very
small income, steadily diminishing from $500 to zero, the
sum total being only $1695. Was it for such an “income”
that he invested $10,000?

§ 12

Tf we suppose an income tax laid on the three brothers, we
shall find that, according to the different interpretations
which we give to the term “income,” the results will
be startlingly different. If the income be taken in its true
sense, namely, as those items whose capital-value is the
$10,000 with which the three brothers started, then an income
 tax of 10 per cent will yield from the first brother
$50 a year; from the second, nothing for 14 years, after