THE THEORY OF INTEREST

prefer not to call it income. For the two parts of thistotal—enjoyed income and accumulation of capital orcapitalized future enjoyments—are unlike. The only ar-gument for adding them together is that the recipientcould use the savings as income and still keep his capitalunchanged. Yes, he could, but he didn’t, otherwise therewould be no savings! One part is income, and the otheris capital gain.

This distinction between the real income, actually en-joyed, and the accretion or accrual of capital value, thatis, the capitalization of future enjoyments, is not onlyin general vital, but vital to the understanding of thisbook. 10

We cannot understand the theory of interest so long aswe play fast and loose with the concepts of capital andincome. And enjoyment income, which plays the centralrole in interest theory, is never savings or increase ofcapital.

§15. Capital-Income Relations

In conclusion we may say that the chief relationsbetween capital and income are:

(1) Capital value is income capitalized or discounted.

(2) If the rate of interest falls, the capital value (cap-italized value of expected income) rises, and vice versa.

(3) This rise or fall in capital value is relatively greatfor durable goods like land, and relatively small fortransitory goods like clothes.

"For fuller treatment of this subject the reader is referred to: TheNature of Capital and Income; Are Savings Income, Journal ofAmerican Economic Association , Third Series, Vol. IX, Ho. 1, pp. 1-27;The Income Concept in the Light of Experience, privately printedas English translation of article in Vol. Ill, of the Wieser Festschrift,Die Wirtschaftstheorie der Gegenwart, Vienna, 1927, 29 pp.

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