True
Incoue
Alleged
Outgo
Alleged
Net
Income
True Capi-tal Value atBeginning ofYear
1st year .
$100
Waiting
$39
$61
$772
2d year .
100
tt
35
65
711
3d year
100
It
32
68
646
4th year .
100
it
29
71
578
5th year .
100
tt
25
75
507
6th year .
100
tt
22
78
432
7th year .
100
tt
18
82
354
8th year .
100
tt
14
86
272
9th year .
100
ft
9
91
186
10th year .
100
tt
5
95
95
$1000
$228
$772
the queer sums given in the table, namely, $61, $65, $68, andso forth? 3
To push this criticism to the limit, let us finally consider aperpetual annuity of $100 a year. In this case we shall find thatthe “cost of waiting” each year is the full $100, for the valueof such an annuity, reckoned at 5 per cent, is $2000 reckonedat the beginning of each year, and $2100 reckoned at the end.
3 It may be of interest to note that this error is the inverse of, or comple-mentary to, the more common one by which the net income is the $100 lessthe “depreciation.” In the first year this would be $772 less $711, or $61,so that the “income” is $39. This sort of accounting, when, instead ofdepreciation, there is appreciation or savings, would make savings appearas income instead of capital. This savings, or depreciation, fallacy isespecially discussed in Are Savings Income? American Economic Associa-tion Journal, April, 1908, and The Income Concept in the Light of Experience.It has been the subject of much controversy. Some economists who fallinto this savings-are-income, depreciation-is-outgo fallacy in some parts oftheir system fall into the waiting-is-cost fallacy in other parts. Bothcannot be right. Each exhibits the evil consequences which ensue fromplaying fast and loose with the concepts of capital and income. If wewish to indulge in such a metaphor as “I got it at the ‘cost’ of waiting,”we can do so but only at the “cost” of inaccuracy. Neither of these so-called “costs” is more than a metaphor.
[ 537 ]