APPENDIX

of that first year. During the second year a waiting cost ofabout the same amount is incurred, and so on for each succeed-ing year, the cost of waiting gradually increasing, as the tablesof compound interest would indicate, until in the fourteenthyear it amounts to 10 cents, and in the twenty-fifth year to 15cents. The total cost for the 25 years will then be $3, and thereturn to the planter at the end, from the sale of the tree, willalso be $3. Consequently, if we take the whole period from thefirst application of labor to the final sale of the tree, the netincome will be zero. This result is, to say the least, somewhatsurprising, but not so much so as some other results of the samespecies of bookkeeping, as the following additional exampleswill show.

Suppose a person owns an annuity amounting to $100 a yearfor 10 years. According to the ordinary method of keepingaccounts, his income consists of this $100 a year each year.But if we count the waiting as a cost, we shall find that theincome for each year is less than $100. The owner of such anannuity will, during the first year, have to suffer “waiting” tothe extent of $39, supposing interest is at 5 per cent; for this isthe increase in value of his annuity during that year, due tohis waiting for the future installments of income of which hisannuity consists. 2 His net income during that year, therefore,according to such accounting, is not $100, but $100 — $39, or$61. During the second year his income in this second year issomewhat greater, for the cost of “waiting” is only $35. Hisnet income is, therefore, $100 — $35, or $65. Similar compu-tations carried out for succeeding years are shown in the tableon the following page.

Is it good bookkeeping to introduce a new and anomalouselement of cost which results in making the net income of theannuitant not the $100 which he actually receives and whichcommon sense recognizes as the income from the annuity but

2 This is evident, since the value of his annuity, capitalized at 5 per cent,reckoned at the beginning, is $772, whereas, reckoned at the end of the firstyear, before his $100 is paid, it is $811.

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