Book 3 — CHAPTER 1.

INCOME IN GENERAL.

SECTION CXLIV.

RECEIPTS.—INCOME.—PRODUCE.

The idea covered by the word receipts (Einnahme) embraces all the new additions successively made to one's resources within a given period of time.[144-1] Income, on the other hand, embraces only such receipts as are the results of economic activity. (See §§ 2, 11.) Produce (Ertrag, produit) is income, but not from the point of view of the person or subject engaged in a business of any kind, but from that of the business itself, or of the object with which the business is concerned, and on which it, so to speak, acts.

Income is made up of products, the results of labor and of the employment and use of resources. These products, the producer may either consume himself or exchange against other products, to satisfy a more urgent want.[144-2] Hence, spite of the frequency with which we hear such expressions as these: "the laborer eats the bread of his employer;" "the capitalist lives by the sweat of the brow of labor;" or, again, a manufacturer or business man "lives from the income of his customers,"[144-3] they are entirely unwarranted. No man who manages his own affairs well, or those of a household, lives on the capital or income of another man; but every one lives on his own income, by the things he has himself produced; although with every further development of the division of labor, it becomes rarer that any one puts the finishing stroke to his own products, and can satisfy himself by their immediate consumption alone. Hence we should call nothing diverted or derived income except that which has been gratuitously obtained from another.[144-4]

SECTION CXLV.

INCOME.—GROSS, FREE AND NET.

In all income, we may distinguish a gross amount, a net amount and a free amount.[145-1] The gross income of a year, for instance, consists of all the goods which have been newly produced within that time. The net[145-2] income is that portion of the former which remains after deducting the cost of production (§ 106), and which may therefore be consumed without diminishing the original resources. Only the new values incorporated in the new commodities make up the net income. Evidently, a great portion of what is considered in one business the cost of production is net income in a great many others; as for instance, what the person engaged in one enterprise in production has paid out in wages and interest on capital. By means of this outlay, a portion of his circulating capital is drawn by others as income, and, on the other hand, a portion of their original income is turned into a portion of his circulating capital.[145-3] Free income, I call that portion of net income which remains available to the producer after his indispensable wants have been satisfied.

An accurate kind of book-keeping which keeps these three elements of income separate is more generally practicable[TN 1] as civilization advances. We might call it the economic balance. Where commerce is very thriving it is even customary to provide by law that those classes who need it especially should have this species of book-keeping. People in a lower stage of cultivation, with their poetical nature, are unfriendly to such calculations.[145-4] [145-5] And where natural-economy (Naturalwirtschaft) or barter prevails, a book-keeping of this kind of any accuracy is scarcely practicable. The ratio which net income bears to gross income is a very important element to enable us to judge of the advantageousness of any method of production. If every producer should succeed in consequence of keeping his books in this manner, in determining exactly the cost to him of each of his products, this would be an economic progress similar to that of general spread of good chemical knowledge in the arts. On the amount of free income, on the other hand, depends all the higher enjoyment of life, all rational beneficence, and the progressive enrichment of mankind.[145-6]

SECTION CXLVI.

NATIONAL INCOME.—ITS STATISTICAL IMPORTANCE.

Among the most important[146-1] but also the most difficult objects of statistics, that book-keeping of nations, is national income. In estimating it, we may take our starting point from the goods which are elements of income, or from the persons who receive them as income.[146-2]

In the former case the gross national income consists:

A. Of the raw material newly obtained in the country.

B. Of imports from foreign countries, including that which is secured by piracy, as war-booty, contributions, etc.

C. The increase of values which industry[146-3] and commerce add to the first two classes up to the time of their final consumption.

D. Services in the narrower sense and the produce (Nutzungen) of capital in use.

All these several elements, estimated at their average price in money, which supposes that all purchases, especially those under the head D, are made voluntarily[146-4] and at their natural price.

To find the national net income, we must deduct the following items:

A. All the material employed in production which yields no immediate satisfaction to any personal want.[146-5]

B. The exports which pay for the imports.

C. The wear and tear of productive capital and capital in use.

In the second case the net national income is to be calculated from the following items:

A. From the net income of all independent private businesses etc.[146-6]

B. From the net income of the state, of municipalities, corporations and institutions, derived from their own resources.

C. Under the former heads must be taken into the account such parts of property as have been immediately consumed and enjoyed.[146-7]

D. Interest on debt must be added only on the side of the creditor, and deducted from the income of the debtor; otherwise, error dupli. This does not apply to taxes or church dues because the subjects of a good state and members of a good church purchase thereby things which are really new and of at least equal value to the outlay. Besides, in both instances, it is necessary to calculate the number of men who live from the national income, the average amount of their indispensable wants, and the average price in money of the same, in order to determine the free national income by deducting the sum total of these average wants, estimated at this average price.[146-8] [146-9]

SECTION CXLVII.

NATIONAL INCOME.—ITS STATISTICAL IMPORTANCE. (CONTINUED.)

The question frequently discussed, whether it is more advantageous to increase the gross income or the net income[147-1] of a people, may be readily answered with the assistance of our tripartite division. Since economic production has no other object than the satisfaction of human wants, the mere increase of the gross income of a people is a matter of indifference. An increase of the net income puts a people in a condition to increase either their numbers or their enjoyments. (See §§ 163 and 239.) The most desirable condition is where both these results are produced. It is fortunate for a people when the free income of the nation increases by reason of the absolute or relative decrease of the cost of production, which adds nothing to enjoyment. But it is politically and morally to be lamented when it increases at the expense of the satisfaction of man's necessary wants, especially if the majority of the people deny themselves in this respect to produce that end. Sir Thomas More called the sheep of his time, to make place for which so many farm houses were razed to the ground, ravenous beasts, which devoured men and laid waste city and country.[147-2]

SECTION CXLVIII.

THE TWO PHASES OF INCOME.

In every income which has anything to do with other incomes, it is necessary to distinguish its immediately productive side, and its profit or acquisition side. It is necessary, in the first place, that all the products made by private parties should, so to speak, be put into the common treasury of the national economy, and that each should thence draw his own private revenue. Justice requires that there should be a perfect correlation between the two; that each should enjoy precisely the quota of the national income to the production of which his person or his property contributed. A just appreciation of the relative productive power of the divers branches of labor constitutes one of the chief bulwarks against the inroads of destructive socialistic theories. The person who calls a good doctor or a good judge unproductive should, to be consistent, call those who by their greater intelligence are fitted to superintend agricultural and industrial enterprises unproductive, also, as is done by the coarser socialists with their apotheosis of mere manual labor. Unfortunately, such a settlement as is above contemplated among the different factors of production, whose owners are desirous to divide the common product among them, is possible only where the factors of production are either of the same kind, or can be reduced to a common denominator.[148-1] But if justice pure and simple were meted out, no man could subsist. Love or charity must supplement justice in order to assist those (and especially such as without any fault of theirs) who are not able to produce anything, or enough to supply those wants, for instance, children and the poor.

As the net national income, following the three great factors of all economic production, is divided into three great branches, rent, wages and interest on capital, the net income from any private business may be reduced to one or more of these branches.[148-2] The three great branches of income may be considered with advantage from a great many different points of view. We may inquire in the case of each of them: concerning its absolute magnitude, its relation to the aggregate national income, to the magnitude of the factor of production, of which it constitutes the remuneration; by what number of men it is shared, and what number of wants it satisfies.[148-3] Lastly, the difference between the amount stipulated for, and the original amount of both rent and wages, as well as the interest of capital, is of special importance. The former consists in the price paid by the borrower for the use of the factor of production to the owner; the latter in the immediate products which the employment of the same productive power brings on one's own account. Evidently, the original amount is, in the long run, the chief element in the determination of the stipulated amount. While the former depends more on the deeper and more durably effective elements of price, especially the cost of production, the value in use and the paying capacity of purchasers; the latter is conditioned more by the superficial variations of supply and demand, and even by custom. For our purposes, the former is by far the more important, but, at the same time, by far the more difficult to perceive.