THE THEORY OF INTEREST

joyment by, that group, as in cutting coupons from abond, will result from the summation of the accountant,who will never record as income the increase or decreasein the capital itself.

A bond price, for example, will grow with accrued inter-est between two coupon cuttings. That growth in itsvalue is not income but increase of capital. Only whenthe coupon is detached does the bond render, or give off,a service, and so yield income. The income consists in theevent of such off-giving, the yielding or separation, touse the language of the United States Supreme Court. If the coupon thus given off is reinvested in another bond,that event is outgo, and offsets the simultaneous incomerealized from the first bond. There is then no net incomefrom the group but only growth of capital. If the finallarge payment of the principal is commonly thought ofnot as income (which it is if not reinvested) but as capi-tal it is because it is usually and normally so reinvested.

Likewise, if my savings bank account gains by com-pound interest, there is no income but only an accretionof capital. If we adopt the fiction that the bank tellerhands over that accretion at any moment to me throughhis window, we must also adopt the fiction that it issimultaneously handed back by me through the samewindow. If the first event is income, the second is outgo.If it passes both ways, or does not pass at all, there canbe no net income resulting. This is good bookkeepingand sound economics. There is no escape from suchmathematical conclusions. By no hocus pocus can wehave our cake and eat it too. This is as impossible asperpetual motion, and fundamentally as absurd. Theabsurdity is especially evident when the cause of an in-crease or decrease in the capital value of a bond or in-

[ 26 ]