Principles of Political Economy Part 1

Principles of Political Economy.

Vol. II.

by William Roscher.

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]

[Footnote 144-1: Including of course, gifts, inheritances, lottery prizes, etc.]

[Footnote 144-2: Thus the original income of the peasant consists in his corn, of the miller in his flour, of the baker in his bread, of the shoemaker in his shoes. The money which circulates among all these and the purchaser, is only the means of exchanging that part of their products which they cannot themselves use, for other goods. Money, on the other hand, was the original income of the producers of the gold or silver it contains. Compare _Mirabeau_, Philosophie rurale, 1763, ch. 3. _Adam Smith_, II, ch. 2. But especially, see _J. B. Say_, Traite II, ch. 1, 5; and _Sismondi_, N. P., I, 90, 376, in which it is correctly said, that the quality which const.i.tutes anything capital or income does not inhere in the thing itself, but depends on the person. Compare, however, I, 148; _Hermann_, Staatsw.

Untersuch. 297 ff., 33 seq.]

[Footnote 144-3: A fundamental thought in _St. Chamans_, Du Systeme d'Impot, 1820. Nouvel Essai sur la Richesse des Nations, 1824.]

[Footnote 144-4: Thus, for instance, the support given by the head of a family to the members thereof; also gifts, alms, thefts. Even _A. L. Schlozer_, St. A., II, 487, will allow that no one "eats the bread of another," but the person who has received it from the latter by way of favor and for nothing. In the case of a rented house, there is only an exchange of objects of income. The person to whom it is rented gives up a portion of his, and the renting party the use of his house. Similarly, in the case of personal services. Writers who maintain that only certain kinds of useful labor are productive, must of course extend the limits of diverted income much farther. See _Lotz_, Handbuch, III, -- 133; _Rau_, Lehrbuch, I, ---- 248, 251.

_Cantillon_ thinks that if no landowner spent more than his income, it would be scarcely possible for any one else to grow rich. (Nature du Commerce, 75.) According to _Stein_, Lehrbuch, 347, every one gets his income from the income of other people!]

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 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 cla.s.ses 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 (_Naturalwirthschaft_) 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]

[Footnote 145-1: Similarly in _Sismondi_, N. P., II, 330, and _Rau_, Lehrbuch, I, -- 71, a.]

[Footnote 145-2: Called by _Hermann_, loc. cit., simply income.]

[Footnote 145-3: This truth _J. B. Say_ has exaggerated to the extent of claiming that gross and net income are one and the same so far as entire nations are concerned. (Traite, II, ch. 5; Cours pratique, III, 14; IV, 74.) But the gross profit of the entire production of any one year is much greater than the simultaneous net income of all the individuals engaged in it. This is accounted for by the fact that in such production an amount of circulating capital is invested which was saved from the net profit of previous economic times. Compare _Storch_, Nationaleinkommen, 90 ff.

_Kermann_, loc. cit., 323 ff.]

[Footnote 145-4: In the East, a valuation by one's self of his property is considered a guilty kind of pride, usually punished by the loss of one's possessions. (_Burckhardt_, Travels in Arabia, I, 72 ff.) See _Samuel_, 24, on the census made by David. The Egyptians, however, as may be inferred from their monuments, must have very early and very extensively felt the want of some kind of book-keeping such as we have mentioned. A very accurate sort of book-keeping among the more highly cultured Romans, with a daily memorandum and a monthly book with entries from the former (_adversaria-tabula expensi et accepti_). Compare _Cicero_, pro Roscio, com. 2, 3; pro Cluent, 30; _Verr._, II, 1, 23, 36. The Latin _putare_, from _putus_, pure, means: to make an account clear, and therefore corresponds to the American provincialism, "I reckon," i. e., I believe; and is a remarkable proof of a rigid method of keeping accounts. The Italian, or so-called double-entry method of book-keeping, which gives the most accurate information on the profit from every separate branch of business, became usual among the nations of modern Europe whose civilization was the first to ripen, about the end of the fifteenth century. Its invention is ascribed to the monk Luca Paciolo di Borgo S. Sepolcro.

In England, this kind of book-keeping is very gradually coming into use even among farmers, while _Simond_, Voyage en Angleterre, 2 ed., II, 64, _Dunoyer_, Liberte du Travail, VIII, 5, say, "it would in France be considered as ridiculous as the book-keeping of an apple vendor." In Germany, there have been for some time past, manufactories of commercial books. Besides, the remarkable difference brought out by the income tax in England between the exact statements made by large manufacturers, etc., and by those engaged in industry on a medium or small scale, bears evidence of the better way in which the former keep their accounts, the cause and effect of their better business in general. Compare _Knies_, in the Tubing. Zeitschr., 1854, 513. On the best mode of determining income, see _Cazaux_, Elements d'economie publique et privee, Livre, II. It is especially necessary to keep an account of the increase or diminution, even when accidental, of the value of the fixed capital employed.]

[Footnote 145-5: The Code de Commerce, I, art. 8, requires that every merchant should keep a journal, paged and approved by the authorities, showing the receipts and disburs.e.m.e.nts of each day, on whatever account, and also the monthly expenditures of his family. Besides, he is required to make a yearly inventory of his debits and credits, subscribe to it and preserve it. That such books were excellent judicial evidence may be shown by Italian statutes of the fourteenth century. (_Martens_, Ursprung des Wechschrechts, 23.) Those of Germany even in 1449.

(_Hirsch_, Danziger Handelsgeschichte, 232.)]

[Footnote 145-6: Importance of the so-called "transferring to credit," where a business man considers his business as an independent ent.i.ty and as distinct from himself.]

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 cla.s.ses 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 munic.i.p.alities, corporations and inst.i.tutions, 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]

[Footnote 146-1: Not only to compare the happiness and power of different nations with one another, but also for purposes of taxation, the profitableness and innocuousness of which suppose the most perfect adaptation to the income of the whole people.]

[Footnote 146-2: The former, in _Rau_, Lehrbuch, I, -- 247; the latter in _Hermann_, 308 ff. The former mode of calculation gives us a means of judging of the comfort of the people, their control of natural forces, etc.; the second, of the relation of cla.s.ses among the people. (_v.

Mangoldt_, Grundriss, 99. V. W. L., 316 ff.) Each member of the nation produces his income only in the whole of the nation's economy. Hence _Held_, Die Einkommensteuer, 1872, 70, 77, would, but indeed only under very abstract fictions, construct private income from the national, and not _vice versa_.]

[Footnote 146-3: On the average degree of this increase of values in different industries, see _Chaptal_, De l'Industrie francaise, II, pa.s.sim. _Bolz_, Gewerbekalender fur, 1833, 111. No such scale can be lastingly valid, because, for instance, almost all technic progress decreases the appreciation of values through industry, and every advance made by luxury raises the claims to refined quality etc. See _Hildebrand_, Jahrbucher fur Nat-Oek., 1863, 248 ff.]