INCOME. Superficially, nothing seems easier to define than a man's income. It is the money which he has to spend in a given period of time, say a week, a month or a year. Fundamentally, however, few things are more difficult to define. A spendthrift may easily spend more than his income, thereby depleting the fund of wealth previously accumulated either by himself or by some one else and put into his possession. His real income would not exceed such a sum as he could spend without depleting its source. Many a small business man and many a small farmer, though not classified as spendthrifts, may easily spend more than their income by failing to allow for the depreciation of their capital or the depletion of their spil.
A business man, however, may allow one form of capital to depreciate by failing to replace it, preferring rather to spend the money which would be necessary for that purpose for some other form of equipment, thus maintaining the total amount of his capital intact. What he spends in order to maintain his capital cannot be considered as income. Similarly, a farmer may allow his soil to become slightly depleted, provided he spends the money which would be necessary to maintain it for some other form of equipment which then becomes a part of his capital. Many of our pioneer farmers found that method necessary in order to equip their farms with buildings, wells. fences, tools and live stock.
On the other hand, it is not uncommon for a man to live frugally and spend a part of his income, not for purposes of consumption, but for the purpose of adding to his capital. Such increments of capital are usually called parts of his income, but some prefer to call them sources of deferred income. If, for ex ample, a man should save $1,000 out of this year's receipts and spend it for new equipment, adding that amount definitely to his total fund of capital, we should ordinarily say that his income for the year included that $1,000, in addition to the amount actually spent for pur poses of consumption. Others would say that this $1,000 is not a part of this year's income. but that it becomes a source of income in future years, that, in short, he had deferred his income from this year until future years. The present writer does not approve of this usage, preferring to call the $1,000 a part of this year's income.
Before attempting a final definition of a man's income, it is necessary to distinguish be tween his money income and his real income. His money income is the amount of money which he can spend in a given period of time. without increasing or decreasing his wealth, that is leaving him at the end of the period with the same quantity of wealth as at the beginning. His real income is the quantity of desirable objects which his money income will enable him to purchase. In a time of rising prices, he will find that his real income is fall ing even though his money income remains the same, and in a time of falling prices he will find that his real income is rising if his money income remains the same. His real income, therefore, is the quantity of goods which he may consume in a given period of time with out increasing or decreasing his fund of wealth, whereas his money income is the amount of money which he may spend under the same conditions.
It is a common mistake to attempt to define the national income as well as the individual's income in terms of money. In a time of rising prices it may appear as though the national in come is enormously increasing. Stated in terms of money, our national income was greater in 1917 than in any previous year. Yet fewer consumable goods were produced in propor tion to the population than for many years. Onr wheat crop was short of the pre-war average by at least 150,000,000 bushels, yet its total value as stated in terms of money was the greatest in our history. The same may be said of a large number of our most important products outside the list of war materials. In terms of consumable articles, or of articles which contribute anything to our national well being in normal times, our national income is very small. In terms of money values it ap pears to be very large, but this appearance is altogether deceptive. Needless to say, the well beiniT of society is not measured by the number of pieces of money which are handed about in the process of exchange. It is measured in terms of products. In short, our national in come is that part of our national production which is left after we have replaced all deteri oration or depletion of our national equipment. It is this which determines how well we may live without depleting our national wealth.