The Nature of Capital and Income

Irving Fisher

Macmillan, 1906 - Capital - 427 pages

Contents

• CHAPTER PAGE: 3
• 2 Classification of wealth: 5
• PAGE: 6
• 3 Measurement of wealth: 8
• Price of wealth: 9
• Market asking appraisedprice: 11
• Value of wealth: 13
• Quantity price and value contrasted: 14
• Accuracy in measurement of quantity price and value: 15
• CHAPTER II: 18
• 2 Definition of services: 19
• 3 Definition of rights: 20
• Wealth and property correlative: 22
• Table illustrating this correlation: 24
• One property right overlaid by another: 31
• Property rights are always to existing wealth: 32
• Total ownership is aggregate of partial rights: 34
• Classification of property rights: 36
• Importance of a clear understanding of wealth and property: 38
• UTILITY: 41
• Synonyms for desirability utility etc: 42
• Total and marginal desirability: 44
• Law of decreasing marginal desirability: 46
• PART I: 49
• Fund and flow distinguished Capital and income: 51
• Discordant definitions of capital: 53
• Fundamental truths in these conflicting definitions: 57
• Confusions resulting from neglect to introduce time element: 58
• The weight of economic usage: 60
• Popular and business usage: 61
• Correct terminology less important than correct thinking: 65
• CAPITAL ACCOUNTS 1 Senses of capital: 66
• 2 Book capitalization: 68
• Book and market values: 71
• Summary of senses of capital: 72
• Case of decreasing capitalbalance: 73
• Effect of payments between stockholders and company: 75
• Rights to subscribe: 77
• Stock watering: 79
• Insolvency: 81
• Pseudoinsolvency: 82
• But practically creditor is risktaker: 84
• Winding up a bankrupt company: 86
• One bankruptcy leads to another: 87
• Summary: 89
• CHAPTER VI: 90
• Distinction between accounts of real and fictitious persons: 92
• Summation by couples brings into relief concrete capital: 93
• 4 Nature of credit: 96
• Importance of distinguishing methods of couples and balances: 97
• PART II: 99
• 1 Difficulties of defining income: 101
• The moneyincome concept: 103
• 3 The realincome concept: 104
• Error of including as income both commodities and services: 106
• 5 Vain attempts to escape the pitfalls thus laid: 109
• Income not restricted to enjoyable elements: 112
• Socalled social and individual income: 113
• 8 Conclusion: 115
• INCOME ACCOUNTS: 119
• 2 Specimen income and outgo accounts: 121
• Cost of construction is to be included in outgo accounts: 124
• 4 Devices for making income regular: 127
• 5 Applications of income accounting: 129
• Example of individual accounts: 131
• Income and outgo account for negative capital liabilities: 134
• Limitations of practical bookkeeping: 135
• Income accounts for fictitious persons: 138
• Relation of income accounts to capital accounts: 139
• INCOME SUMMATION: 141
• PAGE: 142
• Interactions: 143
• 3 Interactions which change the form of wealth production: 145
• Interactions which change the place of wealth transportation: 148
• Interactions which change the ownership of wealth exchange: 149
• 6 Accounts illustrative of the first class production: 152
• Results of combining these accounts: 156
• Methods of balances and couples contrasted: 157
• Accounts illustrative of the third class for fictitious persons: 158
• Accounts illustrative of the third class for real persons: 162
• Objective income leads up to subjective: 165
• 3 Concept of subjective income: 167
• Objective and subjective incomes differ in time: 169
• Objective and subjective incomes differ as to labor: 170
• Labor the only ultimate cost of production: 173
• Objective and subjective income differ as to pain: 175
• Summary: 177
• Classification of services: 178
• CAPITAL AND INCOME XIXVI: 181
• Résumé of previous chapters: 183
• 2 Physical and valueproductivity physical and valuereturn: 184
• Errors from confusing them: 186
• How costs past and future affect values: 188
• CONCEPT OF RATE OF INTEREST: 191
• Annual semiannual quarterly and continuous reckoning: 192
• 11 Conclusion 164: 193
• 3 Rate of capitalization or reciprocal of the rate of interest: 194
• 5 The conditions under which they are interchangeable: 196
• Conditions under which they are not interchangeable: 198
• The rate of discount: 199
• VALUE OF CAPITAL: 202
• Application to valuing capital property and wealth: 204
• 3 Capitalvalue of a perpetual annuity: 208
• 5 Capitalvalue of a terminable annuity: 209
• Application to valuing capital property and wealth: 210
• Capitalvalue of a bond: 217
• Capitalvalue when alternative income streams are possible: 221
• Capitalvalue of a group of articles: 223
• EARNINGS AND INCOME: 227
• 2 Effect of a change in the rate of interest: 229
• Standard or earned income vs realized income: 231
• Increase of capital equals excess of earnings over income: 236
• A depreciation fund as a means of standardizing income: 238
• Sinking funds: 244
• The device of keeping a large stock of instruments: 246
• Savings are not a part of realized income: 247
• Imaginary case of three brothers: 249
• An income tax on the three brothers: 250
• A misconceived income tax affects the use of capital: 253
• To consider savings income confuses capital and income: 254
• CAPITAL AND INCOME ACCOUNTS: 256
• Case in which repairs occur at long intervals: 257
• 3 The same when there is a repair fund but no repairs as yet: 259
• The same when repairs actually occur: 261
• Extraordinary increases or decreases: 263
• 6 Conclusion: 264
• THE RISK ELEMENT: 265
• Definition of chance: 269
• 3 Risk as applied to the rate of interest: 271
• Same in case future income is dependent on rate of interest: 273
• Risk as applied to immediate income: 275
• Riskless mathematical and commercial values: 276
• 7 Capitalvalue of a risky bond: 277
• Riskless mathematical and commercial rates of interest: 279
• Inverse case where instead of risk of loss there is chance of gain: 280
• The general case where both are present: 281
• Difficulties in practice: 283
• Enumeration of causes affecting capitalvalue: 284
• Effect of chance on the form of the discount curve: 286
• Effect of chance on bookkeeping: 287
• Five methods of avoiding risk: 288
• The method of guaranties: 289
• The method of increasing knowledge: 291
• Forms of insurance: 294
• Shifting risks to speculators Dangers of imitative speculations: 295
• Buying and selling futures: 298
• SUMMARIES XVIIXVIII: 301
• Mode of representation adopted: 303
• 2 Capitalvalue as discounted income: 304
• Capitalvalue as mean between past cost and future income: 305
• How to combine capital curves: 309
• Resultant in case of interactions: 311
• 6 Application to summation of capital of individuals: 314
• Application to summation of capital of society: 316
• An interaction as preparatory to enjoyable services: 317
• The risk element: 320
• GENERAL SUMMARY: 323
• Summation of capital and income: 324
• Subjective counterparts of objective capital and income: 326
• Relative changes in values of capital and income: 327
• Final summary: 328
• GLOSSARY SUMMARY OF DEFINITIONS: 329
• APPENDICES: 341
• APPENDIX TO CHAPTER XI: 357
• to Ch XII 6 Mathematical relations between the rates: 363
• to Ch XIII 1 Formula for capitalvalue of a sum due: 368
• to Ch XIII 5 Formula for capitalvalue of a terminable: 374
• to Ch XIII 7 Alternative method for computing value: 380
• Capitalvalue of any income stream whatever 217: 382
• to Ch XIII 8 Diagram showing the accumulated: 387
• to Ch XIII 11 Representation of capital and income: 393
• to Ch XIV 13 Unrestricted application of a true income: 400
• to Ch XVI 6 Mathematical coefficients of probability: 403
• to Ch XVI 20 Method of computing a pure level life: 410
• INDEX: 413
• 3 Desirability vs services 43: 424

Popular passages

Page 59 - Wages, then, depend mainly upon the demand and supply of labour ; or, as it is often expressed, on the proportion between population and capital. By population is here meant the number only of the labouring class, or rather of those who work for hire ; and by capital, only circulating capital, and not even the whole of that, but the part which is expended in the direct purchase of labour.

Page 59 - With these limitations of the terms, wages not only depend upon the relative amount of capital and population, but cannot under the rule of competition be affected by anything else. Wages (meaning, of course, the general rate) cannot rise, but by an increase of the aggregate funds employed in hiring labourers, or a diminution in the number of...

Page 231 - Year. 2nd Year. . 3rd Year. 4th Year. . 5th Year . 6th Year. . 7th Year. . 8th Year.. 9th Year.

Page 106 - The only true method, in our view, is to regard uniformly as income the service of a dwelling to its owner (shelter or money rental), the service of a piano (music), and the service of food (nourishment) . . ." (emphasis in original). I. Fisher, Nature oj Capital and Income (New York: AM Kelley, 1906). * We are tempted to suggest that the word "consumption" be dropped entirely from the economist's vocabulary as being basically deceptive.

Page 294 - ... when, as generally happens with the investing public, the forecasts are not made independently. Were it true that each individual speculator made up his mind independently of every other as to the future course of events, the errors of some would probably be offset by those of others. But, as a matter of fact, the mistakes of the common herd are usually in the same direction.

Page 52 - A stock of wealth existing at an instant of time is called capital. A flow of services through a period of time is called income.

Page 59 - ... be reduced. To illustrate this principle, let us suppose, that the capital of a country appropriated to the payment of wages, would, if reduced to the standard of wheat, form a mass of 10,000,000 of quarters : If the number of labourers in that country were two millions, it is evident that the wages of each, reducing them all to the same common standard, would be five quarters...

Page 346 - Social Income may be estimated by adding together the incomes of the individuals in the society in Social income. question, whether a nation or any other larger or smaller group of persons. But to reckon it directly is for most purposes simplest and best. Everything that is produced in the course of a year, every service rendered, every fresh utility brought about is a part of the national income.

Page 349 - Einkommen die Summe aller in Geld oder Geldeswert bestehenden Einnahmen, mit Einschluss des Mietwertes der Wohnung im eigenen Hause oder sonstiger freier Wohnung, sowie des Wertes der im Haushalte verbrauchten Erzeugnisse der eigenen Wirtschaft und des eigenen Gewerbebetriebes, abzüglich der auf Erlangung, Sicherung und Erhaltung dieser Einnahmen verwendeten Ausgaben, sowie der Schuldzinsen, zu verstehen.

Page 286 - BUSINESS men try not only to estimate the risk which they must encounter and to adjust their accounts accordingly, but they also endeavor to avoid such risks altogether. This follows from the existence of the factor of caution. Where the coefficient of caution is abnormal, amounting to incaution, risks are not avoided, but are expressly sought, and the phenomena of gambling and indiscriminate speculation are the result. But...

Bibliographic information

• Title: The Nature of Capital and Income
• Author: Irving Fisher
• Publisher: Macmillan, 1906
• Length: 427 pages