[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, Traité II, ch. 1, 5; and Sismondi, N. P., I, 90, 376, in which it is correctly said, that the quality which constitutes 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.
[144-3] A fundamental thought in St. Chamans, Du Système d'Impôt, 1820. Nouvel Essai sur la Richesse des Nations, 1824.
[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. Schlözer, 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!
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[TN 1] 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 classes 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 (Naturalwirtschaft) 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]
[145-1] Similarly in Sismondi, N. P., II, 330, and Rau, Lehrbuch, I, § 71, a.
[145-2] Called by Hermann, loc. cit., simply income.
[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. (Traité, 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.