DISCUSSION OF SECOND APPROXIMATION

vices. This will cover the whole subject of the productionof reproducible goods.

This class of optional employments, when the employ-ment involves sales from a stock, merges imperceptiblyinto the special case which we originally called the methodof modifying an income stream by buying or selling.Thus, consider a merchant who buys and sells rugs. Hisstock of rugs is conveniently regarded as retaining itsidentity, although the particular rugs in it are continuallychanging. This stock yields its owner a net income equalto the difference between the gross income, consisting ofthe proceeds of sales, and the outgo, consisting chieflyof the cost of purchases, but including also cost of ware-housing, insurance, wages of salesmen, and so on.

If the merchant buys and sells equal amounts of rugsand at a uniform rate, his stock of rugs will remain con-stant and its net income to be credited to that stock willtheoretically, that is, under our present assumption of ariskless world, be equal to the interest upon its value.It will be standard income . 5 This income to be creditedto his stock in trade is, of course, to be distinguished fromthat to be credited to his own efforts—his wages of super-intending (neither need be called profits in a risklessworld).

But the owner has many other options than that ofthus maintaining a constant stock of goods. He maychoose to enlarge his business as fast as he makes moneyfrom it, in which case his net realized income will be zerofor a time, because all return is “plowed back” into thebusiness. His stock will increase and eventually his in-come will be larger. In this option, therefore, his incomestream is not contant, but ascends from zero to some

“See The Nature of Capital and Income, Chapter XIV, No. 4.

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