Note 147-2 — CHAPTER 1.

The difference between gross and net income was introduced into the science principally by the Physiocrates. Vauban (1707) had no conception of it, and thirty years later a French minister, in his instructions concerning the levy of the vingtièmes, dimly seeing that the aggregate amount of the harvest was not clear gain, ordered, to obtain the latter, that the cost of reaping and threshing should be deducted. (Dupont, Correspondence of J. B. Say, 404, éd. Daire.) By produit net, Quesnay means the excess of original production over its cost, considered from the personal point of view of the individual landowner. This excess, it is claimed, can alone increase the national wealth and alone support the "steril" class.

The political and military bearing of this very clearly recognized. (102 ff., éd Daire.) Hence Quesnay, favors it in every way; by large farming instead of small, by stock raising on a large scale, supplanting home labor by cheaper foreign labor, by machinery and the employment of manual labor, etc.; 91 ff., 200 ff., 274 ff. The elder Mirabeau teaches even that the goodness of a government or of a constitution, and even national morality may be inferred from the amount of the produit net. (Ph. rurale, ch. 5.) Stewart, Principles, I, ch. 20. Adam Smith gives greater prominence to the gross income, and grades the principal branches of national labor according as they increase the gross product of the nation's economy. (II, chs. 1, 5.) Similarly, J. B. Say, Traité, ch. 8, § 3; Lauderdale, Inquiry, 142.

Ricardo thoroughly reacts against this view, and considers it a matter of indifference whether a net product (interest on capital and rent) of a given amount be obtained by the labor of five or seven million other men, so long as only five million can live on it. (Principles, ch. 26.) Similarly Ganilh, Systèmes, I, 218 ff.; Théorie, II, 96. Controverted by Malthus, Principles, II, § 6. Buquoy, Theorie der Nat. Wirthsch., 1815, 310 ff. Sismondi has ridiculed this predilection for the net product which in Ricardo corresponds with what the Germans call free product (freien Ertrage), and which, contrary to Ricardo's own opinion, he calls Ricardo's ideal, saying that according to him, nothing more was to be desired but that "the king should remain alone on the island and, by turning a crank forever, do all the work of England through the instrumentality of automata." (N. P., II, 330 ff.) An entire people should value only gross product. (I, 183.) In his Etudes, Essai, II: Du Revenu Social, Sismondi distinguishes as elements of the gross national income: a, pure capital, the return of outlay; b, that which is at once both capital and income, and serves as family support (capital as a necessarily remaining supply, income as the product of the preceding year); c, net income, the excess of production over consumption.

The Socialists of our day would prefer to see the whole net income of a people employed in the satisfaction of the necessary wants of an ever increasing population. By this procedure, as a natural consequence, we should witness first the curtailing of the taxing power, of the funds for the satisfaction of the more refined wants and of the saving of capital, nor would it be long before even the existing generation would experience the bitterness of this "living from hand to mouth." After a time, even the possibility of progress and even of mere increase of population would cease.

Hermann, Staatsw. Untersuch., 297 ff., has better than almost any one else developed the theory of income, and he lays most stress on the satisfaction of wants as the chief aim of public economy. Kröncke, Das Steuerwesen, 1804, 381 ff.; Grundsätze einer gerechten Besteuerung, 1819, 93 f., may be considered the predecessor who prepared the way for him. Compare the profound work of Bernhardi, Versuch einer Kritik der Gründe die für grosses und kleines Grundeigenthum angeführt werden, St. Petersburg, 1848. Many controversies on this subject may be closed by a more accurate understanding as to terms. Thus, for instance, when Rau, Handbuch, embraces in the cost of production the necessary maintenance of material-workmen, and of those engaged in the labor of commerce; or when Jacob, Staatswissenschaft, § 496, and Storch, Einkommen, 116 ff., even the necessary support of every class useful to society, their valuation of the gross national income is in only apparent conflict with our doctrine on the subject.