Chapter 10 Chapter IV Income.capital

Section 1 Money Income and Working Capital. In a primitive society, every family is almost self-sufficient, providing its own food and clothing, as well as most of its furniture.A very small part of the income or income of households is in the form of money; and if any one thinks of their income, he calculates their benefit from cooking utensils, just as they get from plowing: so in their capital and including cooking utensils and He could see no difference between the plows and the rest of their accumulated property. However, with the development of the money economy, there has been a strong tendency to limit the concept of income to those incomes in monetary form: these include "wages in kind" (such as free use of houses, coal, gas and water), which are paid as wages for hired workers. part of the wages in lieu of money wages.

Consistent with this sense of income, the terminology of the market usually regards a person's capital as that part of his wealth which is used to obtain income in the form of money; that part.It may sometimes be convenient to call this part his trading capital; it consists, so to speak, of those extrinsic goods which a man employs in his business, and which he holds either to sell for to obtain money, or use them to produce things that can be sold for money.The salient elements belonging to this capital are the factory and manufacturer's business equipment; that is, his machinery, raw materials, food, clothing, and houses available to him for his hired workers, and the credit of his business.

To what he owns is added what is his right and income from it: his loans, mortgaged or otherwise, and, in the complex forms of the modern "financial market," what is available to him. All control over capital.On the other hand, the debts owed by him must be deducted from his capital. This above-mentioned definition of capital, from the point of view of a person or business, is firmly established in ordinary usage; This definition will be used throughout this book when dealing with the supply problem ofIn the first half of this chapter we shall discuss income and capital from the point of view of private business, and then consider the problem from the point of view of society.

The second section defines net income, interest and profit from the point of view of daily business.Net profit, operating income, quasi-ground rent. If a man is in business, he must pay some expenses for raw materials, labor, etc.In this case, his real or net income is obtained by subtracting the "costs of generating the gross income" from his gross income. Anything a man does for a money reward, directly or indirectly, increases his nominal income; but what he does for himself usually does not.But if they are trivial things, it is generally best not to bother, but when they are such a job that one usually pays for doing them, they should be considered for the sake of consistency.Thus a woman who makes her own clothes, or a man who digs in his garden or repairs his own house, earns income, just as employing a tailor, gardener, or carpenter for such work earns income. Same.

On this point, we can introduce a noun that we will use frequently in the future. The need for this term arises from the fact that every occupation has disadvantages other than the fatigue of work which is inevitable in it, and that every occupation has advantages other than the income of money wages.The real remuneration afforded by an occupation to labour, must be calculated by subtracting the monetary value of all its disadvantages from the money value of all its advantages; pure profit. The remuneration paid by the borrower for the use of the loan, say for a year, indicates the ratio of this remuneration to the loan, called interest.The term is also used more broadly to represent the monetary equivalent of total income from capital.It usually indicates a certain percentage of the "capital" amount for the loan.In each such case, we cannot regard capital as something existing in general, but must regard it as a particular thing existing which represents the general thing, namely money.

Thus £100 can be lent at 4 per cent, which is £4 a year in interest. Again, if the capital of the various goods which a man employs in his business is estimated to be worth a hundred thousand pounds altogether; assuming that the total money value of the goods which make up this capital does not vary, we may say that four hundred pounds a year represents This capital earns 4% interest rate.He will, however, be unwilling to continue the business unless he expects the whole net profit from it to exceed the interest on it at the prevailing rate of rate.These interests are called profits. The disposition over goods of a definite monetary value, which can be used for any purpose, is often called "free" or "circulating" capital.

When a man is engaged in trade, his profit in a year is the excess of what he receives from the trade in the same year over what he expends for it.The difference between the value at the end of the year and the beginning of the year of his present equipment, materials, etc., forms part of his income or expenditure, according to the increase or decrease in value.After deducting from the profits the interest on his capital at the prevailing rate (and, if necessary, the insurance premium), what remains is usually called his business or operating income.The ratio of his profits to his capital in a year is called his rate of profit.But this statement, like the one concerning interest, presupposes an estimate of the monetary value of the various things which constitute his capital: and such an estimate often involves great difficulties.

When any particular thing, such as a house, a piano, or a sewing machine, is rented out, the payment for it is often called rent.Economists may also follow this custom without inconvenience when they consider income from the point of view of individual merchants.But, as will now be seen, whenever the discussion of business affairs passes from the point of view of the individual to that of the society as a whole, it seems expedient to reserve the term rent to represent revenue from natural gifts.For this reason the revenue derived from machinery and other instruments of production made by man will be represented in this book by the term quasi-rent.That is to say, any particular machine can produce a revenue of the nature of ground-rent, and is sometimes called ground-rent; though generally speaking it seems expedient to call it quasi-rent.But we cannot say that the machine produces interest, and it would be improper to say so.If we use the term "interest," it must have to do not with the machine itself, but with the money value of the machine.For example, if the work done by a machine worth £100 nets £4 a year, the machine generates a quasi-rent of £4, which is an interest of 4 per cent on the original cost: but if the machine is now worth only £8 ten pounds, it yields a quasi-rent of 5 per cent of the present value of the machine.However, this point raises some difficult problems of principle, which are discussed again in Part V.

Section III capital classification from the private point of view. Let us consider some details about capital again.Capital has been divided into two classes of consumption capital and auxiliary or instrumental capital: although no clear distinction can be drawn between the two classes, it may sometimes be convenient to use these terms when our understanding of their meaning is vague. of.Where clarity is required, we should avoid the use of these terms and have explicit elaborations.A general idea of ​​the distinction which these nouns intend to express can be obtained from the following approximate definitions.

Consumption capital consists of goods having a form which directly satisfies desire; It is the goods that directly sustain the lives of workers, such as food, clothes, houses, etc. Auxiliary or instrumental capital is so called because it consists of all goods which assist labor in production.Capital belonging to this class are tools, machines, factories, railways, docks, ships, etc., and raw materials of all kinds. But of course a man's clothes help him at his work, and help to keep him warm; he derives as much immediate advantage from the protection of his factory as he does from the protection of his house. same direct interests.

We can follow Mill's distinction between circulating capital and fixed capital, the former "fulfills the whole task of using it in production after a single use", while the latter "exists in a durable form after a corresponding durable number of years". be restored to capital." Section IV capital and income from a social point of view. When we discuss the production of goods for sale, and the causes which govern their exchange-value, the customary view of the merchant is the one most convenient for economists to take. But when the businessman studies the causes which govern the material well-being of society as a whole, both he and the economist must take a broader view.Ordinary conversation can pass from one point of view to another without any formal account of the change: for, if a misunderstanding occurs, it is quickly cleared up; a question or a A voluntary explanation would clear up the confusion.But the economist must not run this risk: he must account for any change in his views or in the usage of terms.If he passes from one use to another without explanation, his course may seem for a moment to be smoother: but after all, in every doubtful case, a clear explanation of each noun will make greater progress. improvement. Let us, therefore, throughout the rest of this chapter consciously take the social point of view as opposed to the individual's: let us study the production of the whole society, and its total net income available for all purposes.That is to say, to return almost to the point of view of primitive peoples, who were chiefly concerned with the production of desired things, and their immediate use, and little attention was paid to exchange and buying and selling. From this point of view, income is seen to include all the benefits that human beings derive at any time from their present and past efforts to make the best use of natural resources.The pleasures deriving from the beauty of a rainbow or the fragrance of fresh morning air are not counted as benefits, not because they are unimportant, nor because counting them would make the estimate inaccurate, but only because counting them Counting it as an advantage will not have good results, but will greatly lengthen our sentences and make our discussions cumbersome.For the same reason, it is not worth considering separately the simple things that almost everyone does for himself, such as dressing himself, etc.;So it's not a matter of principle to count such things as interests; the time spent by some polemical writers on it is really wasted.Excluding them is simply following the adage that "the law doesn't care about trifles."A motorist who does not notice standing water on the road and thereby splashes a pedestrian is not legally considered to be injurious; Behavior, in principle, makes no difference. When a man employs his present labor for himself, it yields directly to him income; if he employs it in the service of others, he can expect some form of remuneration for it.In the same way, anything useful which he has made or acquired in the past, or bequeathed to him under the present system of property by those who made or acquired it, generally becomes directly or indirectly the subject of his material interest. source.If he uses this thing for business, the income he gets usually takes the form of money.However, a broader use of the term income is sometimes required, including the total income of all benefits a person derives from the ownership of his property, regardless of how his property is used: e.g., he uses The benefit from owning a piano is included as well as the benefit a piano dealer would get from renting out a piano.The language of everyday life, even when discussing social questions, is at odds with the broad usage of the term income, which customarily includes several forms of income other than money income. The Income Tax Commissioners also count as a source of taxable income an owner-occupied home, even though the home does nothing more than directly provide for the comfort of the homeowner.They do this not on any abstract principle; but partly because of the practical importance of the house, partly because the ownership of a house is usually viewed as a business, and partly because the actual income thus derived can be easily divided and estimate.They do not claim to establish any kind of absolute distinction between what is included in their taxation regulations and what is not. Jevons, considering the matter from a purely mathematical point of view, was justified in classifying all commodities in the hands of consumers as capital.But some writers have developed this opinion so subtly that they have taken it as an important principle; that would seem to be an error of judgment.The real point of proportionality is not that we burden our work by continually enumerating minor details which are not considered in ordinary conversation, and which would violate common usage even to state them. The fifth section continues. This leads us to consider the use of the term capital from the standpoint of studying the material well-being of society as a whole.Adam Smith said that a man's capital is that part of his assets which he expects to earn.Almost every use of the term capital known in history corresponds more or less closely to the same use of the word income: in almost every use capital is the income which a man expects from his that part of the The most important use of the term capital in general—that is, capital from the social point of view—is in the study of how the three elements of production: land (i.e., the elements of nature), labor, and capital contribute to the production of national income ( or hereinafter referred to as gross national income); and how national income is distributed among these three elements.This is another reason why the terms capital and income are related to each other from the social point of view as well as from the individual point of view. In this book, therefore, everything other than land, which produces the kind of income which is counted as income in ordinary talk; part of the capital. The term land is used to include all gifts of nature which produce income, such as mines, fisheries, etc. Capital thus includes everything held for business purposes, whether machinery, raw materials, or manufactured goods; theaters and hotels; family farms and houses: but not furniture or clothing owned by the user .For the former is what the world ordinarily regards as producing revenue, while the latter is not, as the practice practiced by the Income Tax Commissioners shows. This use of the term is in keeping with the usual practice of economists who first study social problems in general terms, leaving minor details for later study; The activities which are the sources of income of the laborer - and only these activities - correspond to the usual practice included in labour.Labor, and capital and land thus construed, are the sources of all income which are ordinarily taken into account in calculating the national income. The sixth section continues. The income of a society can be estimated by adding together the individual incomes of the society, whether it is a country or any group.However, we must never count the same thing twice.If we calculate the full value of a rug, we have already taken into account the yarn and labor which went into making it; these things can never be counted.Moreover, if the blanket is made of the wool deposited in the previous year, the value of the wool must first be subtracted from the value of the blanket in order to obtain the net income of the year; Equipment losses are also subtracted.Our reason for doing this is the general rule we set out at the outset: that is, real or net income is obtained by subtracting from gross revenue the expenses which produced it. But if the rug has been washed by a domestic servant or by a steam-cleaner, the value of the labor employed in the washing must be accounted for separately; And the handy catalog is completely missing.The work of domestic servants is often included in the category of "labour" in a special sense, because it can be fully valued by the value of the monetary and kind rewards they receive, and it is not necessary to enumerate them one by one, so it is included in the income of the society. No great statistical difficulties arise within.Where servants are not used, however, it would be inconsistent to omit the heavy domestic work done by women and others in the household. Next, suppose a landowner, with an income of ten thousand pounds a year, employs a private secretary at five hundred pounds, who in turn employs a servant at fifty pounds.If the incomes of these three people are all counted as part of the country's net income, some incomes seem to be counted twice, and some seem to be counted three times.But that's not the case.The landlord transfers to his secretary, as payment for his assistance, a part of the purchasing power which he derives from the produce of the land; and the secretary transfers a part of it to his servant, as payment for his assistance.The produce of the land, the value of which goes to the landlord as rent, the assistance which the landlord receives from the work of the secretary, and the assistance which the secretary receives from the work of the servant, are separate parts of the real net revenue of the state; therefore ten thousand pounds, five hundred The pound and fifty pounds are the monetary measures of these three parts, and we must take them all into account when we calculate the income of the country.But if the landlord gives his son an allowance of five hundred pounds a year, it can never be counted as an independent income; as no contribution is made to the five hundred pounds, and it is not subject to income tax. As a man's net income from interest or otherwise--by net is the amount after deducting the sums he owes others--is part of his income, so the money and other things that a country receives from other countries net It is also part of the national income. The seventh section continues. The monetary income of wealth, or inflow of wealth, is a measure of a country's prosperity which, while unreliable, is still in some respects better than that provided by the monetary value of a country's existing wealth. For revenue consists chiefly of commodities which directly produce pleasure, while the wealth of the country consists for the most part of means of production, which are of any use to the country only in so far as they contribute to the production of commodities for consumption. contribute.Moreover, though this is a less important point, commodities for consumption are lighter, and have a more uniform price all over the world than the things with which they are produced.For example, the difference in the price of the acre of good land in Manitoba and Kent is greater than the difference in the price of the bushel of wheat produced in the two places. However, if we are primarily concerned with the income of a country, we must subtract the depreciation at the source from which the income was derived.If a house is built of timber, the depreciation deducted from the income it produces must be somewhat greater than if it were built of stone; The real wealth of a country is worth more.Again, a mine, which produces a substantial income for a time, may be exhausted after a few years: in this case it must be counted as equal to a field or fishing ground which produces much less annual income, but always produces it. Section 8 Productivity and predictability are two equal attributes of capital in terms of capital demand and supply. In purely abstract, especially mathematical reasoning, the terms capital and wealth are almost necessarily used synonymously, except that the inherent "land" can be omitted from capital for certain purposes.But there is a clear tradition that when we consider things as factors of production, we should speak of capital; Time, we should say wealth.The chief demand for capital, then, arises from its productiveness and the services it renders, such as enabling wool to be spun easier than by hand, or water to be free where it is needed. out without having to laboriously bring it up in buckets (although there are other uses of capital, such as lending it to a wasteful man, which do not fall into this category).On the other hand, the supply of capital is governed by the fact that, in order to accumulate capital, people must plan for a rainy day: they must "wait" and "save," they must sacrifice the present for the future. We said at the beginning of this chapter that economists must abandon the idea of ​​resorting to a whole set of terms.With the aid of qualifying adjectives or other indications of the context, he must use commonly used nouns in order to express the correct thought.If there are several more or less vague meanings in the usage of a market, and he arbitrarily prescribes a fixed correct usage for it, he not only confuses the merchant, but also risks getting himself into trouble.So the choice of a normal usage for terms like income and capital must be tested by its actual use.