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.
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.
[148-1] This is possible between labor and capital, at least in so far as a comparison can be instituted between the sacrifice of human rest there is in labor and the sacrifice of enjoyment in the building up of capital. But the person who introduces an entirely unimproved piece of land into the service of production, stands to the laborer as well as to the capitalist in a relation which is entirely incomparable with any other. (See § 156.) The doctrine of former agriculturists, that one-half of the harvest was to be ascribed to the soil and the other to the manure, would not suffice here, even if it were correct. Compare Fraas, Gesch. der Landbau- und Forstwissenschaft, 257. But in the production of a calf, the coöperation of a bull and cow are necessary. Yet no one is in condition to determine what portion of the calf is to be accounted as belonging to either. If the bull and cow belong to different owners, the relation of supply and demand, and the deeper causes that determine them, decide in what proportion the value of the calf is to be divided among them.
[148-2] Among the greatest services rendered by Adam Smith is, his complete demonstration, that any income may be resolved into one or more of the three great branches of the national income. (I, ch. 6.)
[148-3] Ricardo has not unfrequently bewildered uncritical readers, by his habit—in which he is by no means always consistent—of using the expressions higher and lower wages, higher and lower profit of capital, to designate not the absolute greatness of these branches of income, either in money or in the wants of life, nor their greatness from a personal point of view, but only their relative greatness as compared with the aggregate income, the measure of the quota of the aggregate product which is divided among workmen, capitalists, etc. And yet, in the case of most economic questions, this is without doubt the less interesting side. Compare the polemic of R. Jones, On the Distribution of Wealth, 1831, I, 288 ff.; Senior, Outlines, 142 seq.; Carey, On the Rate of Wages, 1834, 24. Thus, according to Ricardo, the increase of one branch is possible only at the expense of another, while in the case of flourishing nations, the three branches increase absolutely and together. Ricardo, himself, was by no means unacquainted with this, as may be seen from Baumstark's German translation of his work, pp. 37, 108 ff.