INCOME AND CAPITAL

vestment is not due to any change in the expected incomeat all but comes through a change in the rate of interest.Consols and rentes fluctuate in value every day withevery change in the money market. Yet the income theyactually yield flows on at the same rate. Merely the capi-tal value is found sometimes on a 3 per cent basis andsometimes on a 4 per cent basis. A rise in the marketis a capital gain, but it is not income. Income may beinvested and thus transformed into capital; or capitalmay be spent and so transformed into income. In the firstcase, as we have seen, capital accumulates; in the sec-ond case, capital is diminished. In the first case the manis living inside his money income; in the second casehe is living beyond his money income.

If Henry Ford receives $100,000,000 in dividends butreinvests all but $50,000, then his real income is only$50,000, 9 even if his money income is $100,000,000. Andif, during the year of rebuilding his factories to make hisnew car, he received no dividends and yet spent $40,000in that year for living expenses and all other satisfac-tions, then his real income was this $40,000 even if hismoney income that year was zero.

Thus the income enjoyed in any year is radically differ-ent from the ups and downs of one’s capital value in thatyear—whether this is caused by savings or the opposite,or by changes in the rate of interest or by so-calledchance.

We may in our bookkeeping add our savings to ourreal income and call the sum total gain. For my part, I

* Except, as already stated in a previous footnote, he derives in addi-tion to this obvious income other less tangible and more subtle incomefrom the sense of possession, prestige, power, etc., which go with greatwealth.

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