The nature of capital and income

Front matter

::;lii

Class.

h/S6 o/

Preface

This book is an attempt to put on a rational foundation the concepts and fundamental theorems of capital and income. It therefore forms a sort of philosophy of economic accounting, and, it is hoped, may supply a link long missing between the ideas and usages underlying practical business transactions and the theories of abstract economics. To some readers it may seem that certain elementary topics have been treated at undue length ; but, as experience shows that economic structures built on hasty and inadequate generalizations inevitably collapse, it seems hardly possible to take too much pains in making the foundations secure. On the other hand, topics which are in their nature technical or which digress from the main theme — and in particular mathematical formulae — have been relegated to appendices.

Many of the theses maintained will undoubtedly fail to command assent on a first reading, for in any orderly presentation of a subject it is impossible to forestall all objections as they occur. The aim has been to preserve a definite sequence by which each step prepares the way for those which follow; but this plan has necessitated the postponement of some topics beyond the point at which a consciousness of their difficulties might begin to trouble the reader. He is therefore asked to stay judgment until he has finished the work, and, if necessary, to reread those parts in which his difficulties were first encountered. This suggestion is especially urged in regard to the treatment of income, the concept of which forms the central theme of the book. Many of the friendly critics to whom the manuscript has viii PREFACE

been shown have at first dissented strongly from the conclusions of Chapter VII, but have invariably withdrawn their objections after finishing Chapter XIV.

The nature of income is a subject which has not hitherto received, in economic literature, the attention it deserves. Income plays an important role in all economic problems ; it is income for which capital exists ; it is income for which labor is exerted ; and it is the distribution of income which constitutes the disparity between rich and poor.

Nor is the subject of interest solely to theoretical economists. It appeals to practical men of affairs and to those who are interested in problems of social reform, as well as to the special classes of accountants, actuaries, and mathematicians. The book is so arranged that the general reader may, if he so desires, omit the technical portions, such as the appendices and possibly Chapter XVII. It is suggested that all readers should give special attention to Chapters VI, VII, IX, and XIV.

The problem of nomenclature has proved not a little puzzling. In general, each term has been employed in one, and only one, sense ; but to follow this plan exclusively has not been found practicable. Several words are sometimes used for the same concept, — for instance, "resources" and "assets," or "utility "and "desirability"; and sometimes the same word has been used in more than one sense, as in the case of " capital," which may mean capital-goods or capital- value. But special pains have been taken to avoid any confusion or uncertainty of meaning. The definitions have been carefully framed, and will be found collected in a glossary at the end.

A few fragments of the book have appeared in a somewhat different form in economic periodicals, and the whole book may be said to be only the elaboration of the ideas outlined some years ago in the Economic Journal. I would express my thanks to the publishers of the Economic Journal for permission to use unaltered some

PREFACE ix

passages from " What is Capital ? " 1897, " Senses of Capital," 1898, and " The Role of Capital in Economic Theory," 1898, and to the Quarterly Journal of Economics for similar permission with reference to "Precedents for Defining Capital," 1904.

I wish also to express my obligations to the many persons who have aided me in the preparation of this work, among them especially my wife ; my brother, Mr. Herbert W. Fisher ; my colleagues. Professor Henry C. Emery, Professor John P. Norton, and Dr. Lester W. Zartman; and my friends, Mr. Richard M. Hurd and Mr. Orland S. Isbell of New York City.

IRVING FISHER.

New Haven, Conn., June, 1906.

CHAPTER I Wealth

§ 1. Definition of wealth

§ 2. Classification of wealth .

§ 3. Measurement of wealth .

§ 4. Price of wealth

§ 5. Market-, asking-, appraised-price

§ 6, Value of wealth

§ 7. Quantity, price, and value contrasted

§ 8. Accuracy in measurement of quantity, price, and value

5 8 9 11 13 14 15

CHAPTER II Pkopekty

§ 1. Definition of property

§ 2. Definition of services

§ 3. Definition of rights .

§ 4. Wealth and property correlative

§ 5. Table illustrating this correlation

§ 6. A guide for finding wealth underlying given property rights

§ 7. A second guide : One property right overlaid by another

§ 8. A third guide : Property rights are always to existing wealth

§ 9. Total ownership is aggregate of partial rights .

§ 10. Classification of property rights . . ...

§ 11. Importance of a clear understanding of wealth and property

18 19 20 22

24 24 31 32 34 36 38

CHAPTER III Utility

§ 1. Desirability vs. satisfaction 41

§ 2. Synonyms for desirability (utility, etc.) 42

§ ;l Desirability vs. services 43

xiii xiv ANALYTICAL TABLE OF CONTENTS

§ 4. Total and marginal desirability 44

§ 5. Law of decreasing marginal desirability 46

CHAPTER rV Capital

§ 1. Pund and flow distinguished. Capital and income . , 51

§ 2. Discordant definitions of capital 53

§ 3. Fundamental truths in these conflicting definitions . . 57

§ 4. Confusions resulting from neglect to introduce time element 58

§ 5. The weight of economic usage 60

§ 6. Popular and business usage 61

§ 7. Correct terminology less important than correct thinking . 65

CHAPTER V Capital Accounts

§ 1. Senses of capital 66

§ 2. Book capitalization 68

§ 3. Book and market values 70

§ 4. Summary of senses of capital 72

§5. Case of decreasing capital-balance . . . . . .73

§ 6. Effect of payments between stockholders and company . . 75

§7. " Rights to subscribe " 77

§ 8. Stock watering 79

§ 9. Insolvency 81

§ 10. Pseudo-insolvency 82

§ 11. Creditor nominally takes no risk 82

§ 12. But practically creditor is risk-taker 84

§ 13. Winding up a bankrupt company 86

§ 14. One bankruptcy leads to another 87

§ 15. Summary 89

CHAPTER VI Capital Summation

§ 1. Methods of couples and balances 90

§ 2. Distinction between accounts of real and fictitious persons . 92 § 3. Summation by couples brings into relief concrete capital . 93

ANALYTICAL TABLE OF CONTENTS xv

PAOB

§ 4. Nature of credit 96

§ 6. Importance of distinguishing methods of couples and balances 97

Chapter VII

§ 1. Difficulties of defining income 101

§ 2. The money-income concept 103

§ 3. The real-income concept 104

§ 4. Error of including as income both commodities and services . 106

§ 5. Vain attempts to escape the pitfalls thus laid .... 109 § 6. Income not restricted to " enjoyable " elements . . .112

§ 7. So-called social and individual income 113

§ 8. Conclusion 115

CHAPTER VIII Income Accounts

§ 1. Introduction 119

§ 2, Specimen income and outgo accounts 121

§ 3. Cost of construction is to be included in outgo accounts . . 124

§ 4. Devices for making income regular 127 •

§ 5. Applications of income accounting 129

§ 6. Example of individual accounts 131

§ 7. Income and outgo account for negative capital (liabilities) . 134

§ 8. Limitations of practical bookkeeping 135

§ 9. Income accounts for fictitious persons 138

§ 10. Relation of income accounts to capital accounts . . . 139

Chapter IX

§1. Summation by " method of balances " 141

§2. "Interactions" 143

§ 3. Interactions which change the form of wealth (production) . 145

§ 4. Interactions which change the place of wealth (transportation) 148

§ 5. Interactions which change the ownership of wealth (exchange) 149

§ 6. Accounts illustrative of the first class (production) . . 152

§ 7. Results of combining these accounts 156

§ 8. Methods of balances and couples contrasted .... 157

§ 9. Accounts illustrative of the third class, for fictitious persons . 158

§ 10. Accounts illustrative of the third class, for real persons . . 162

§ 11. Conclusion 164

XVI

ANALYTICAL TABLE OF CONTENTS

CHAPTER X Psychic Income

§ 1. Objective income leads up to subjective .

§ 2. Illustrative cases

§ 3. Concept of subjective income ....

§ 4. Objective and subjective incomes differ in time

§ 5. Objective and subjective incomes differ as to labor

§ 6. Labor the only ultimate cost of production

§ 7. Objective and subjective income differ as to pain

§ 8. Summary

§ 9. Classification of services

PAGE

CHAPTER XI Tour Income-capital Ratios

§ 1. Besume of previous chapters 183

§ 2. Physical- and value-productivity, physical- and value-return . 184

§ 8. Errors from confusing them Ib6

§ 4. How costs, past and future, affect values 188 :

CHAPTER XII Concept of Rate of Interest — -^

§ 1. The rate of interest as a case of " value-return " . . . 191

§ 2. Annual, semi-annual, quarterly, and continuous reckoning . 192

§ 3. Rate of capitalization or reciprocal of the rate of interest . 19i

§ 4. The " premium " and " price " concepts of the rate of interest 194

§ 5. The conditions under vphich they are interchangeable . . 196

§ 6. Conditions under vrhich they are not interchangeable . . 198

§ 7. The rate of discount .199

§ 8. Summary 199

Chapter XIII

§ 1. Capital- value of a single future item. The "discount curve "

§ 2. Application to valuing capital, property, and wealth

§ 3. Capital-value of a perpetual annuity

§ 4. Application to valuing capital, property, and wealth

§ 5. Capital-value of a terminable annuity

§ 6. Application to valuing capital, property, and wealth

§ 7. Capital-value of a bond

§ 8. Capital-value of any income stream whatever

204'

205'

ANALYTICAL TABLE OF CONTENTS

XVll

§ 9. Capital-value when alternative income streams are possible

§ 10. Capital-value of a group of articles

§ 11. General conclusion

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221 223 223

CHAPTER XIV Earnings and Income

§ 1. Capital-value less than total anticipated income . . . 227

§2. Effect of a change in the rate of interest .... 229

§ 3. Value-return may be greater or less than rate of interest . 229

§ 4. Standard or earned income vs. realized income . . . 231

§ 5. Increase of capital equals excess of earnings over income . 236

§ 6. A depreciation fund as a means of standardizing income . 238

§ 7. Sinking funds 243

§ 8. Other devices for making income regular .... 244

§ 9. The device of keeping a large stock of instruments . . 246

§ 10. Savings are not a part of realized income .... 247

§11. Imaginary case of three brothers 249

§ 12. An ' ' income ' ' tax on the three brothers .... 250

§ 13. A misconceived income tax affects the use of capital . . 253

§ 14. To consider " savings " income confuses capital and income . 254

CHAPTER XV Capital and Income Accounts

§ 1. Capital and income accounts when items recur regularly.

§ 2. Case in which repairs occur at long intervals .

§ 3. The same, when there is a repair fund but no repairs as yet

§ 4. The same, when repairs actually occur ....

§ 5. Extraordinary increases or decreases ....

§ 6. Conclusion

256 257 259 261 263 264

Chapter XVI

§ 1. Subjective nature of chance . . , . .

§ 2. Definition of chance

§ 3. Risk as applied to the rate of interest ....

§ 4. Same, in case future income is dependent on rate of interest

§ 5. Risk as applied to immediate income ....

§ 6. "Riskless," "mathematical," and "commercial" values

§ 7. Capital-value of a risky bond

§ 8. Riskless, mathematical, and commercial rates of interest

§ 9. Inverse case, where instead of risk of loss there is chance of gain

265 269 271

273 275 276 277 279 280 xviii ANALYTICAL TABLE OF CONTENTS

PAGE

§ 10. The general case, where both are present .... 281

§ 11. Difficulties in practice 283

§ 12. Enumeration of causes affecting capital-value . , . 284

§ 13. Effect of chance on the form of the " discount curve " . . 286

§ 14. Effect of chance on bookkeeping 287

§ 15. Five methods of avoiding risk 288

§ 16. The method of guaranties 288

§ 17. The method of safeguards 289

§ 18. The method of increasing knowledge 291

§ 19. The method of insurance 291

§ 20. Forms of insurance 294

§21. Shifting risks to speculators. Dangers of imitative speculations 295

§ 22. Buying and selling futures 298

CHAPTER XVII Summary of Part III bt Means op Diagrams

§ 1. Mode of representation adopted

§ 2. Capital- value as discounted income

§ 3. Capital-value as mean between past cost and future income

§ 4. How to combine capital curves

§ 5. Resultant in case of interactions

§ 6. Application to summation of capital of individuals .

§ 7. Application to summation of capital of society

§ 8. An " interaction " as preparatory to enjoyable services .

CHAPTER XVIII General Summary

§ 1. Picture of capital and income

§ 2. Summation of capital and income ....

§ 3. Subjective counterparts of objective capital and income

§ 4. Relative changes in values of capital and income .

§ 5. Final summary

323 324

326 327 328

GLOSSARY Summary of Definitions 329

APPENDICES

§ 1 (to Ch. XI, § 2). Mathematical dimensions of income-capital

ratios 357

Appendix to Chapter XII

§ 1 (to Ch. XII, § 2). Mathematical relations between rates of interest reckoned annually, semi-annually, etc., when the rates are conceived in the " price " sense 357

§ 2 (to Ch. XII, § 4). The same, when the interest rates are conceived in the " premium " sense. Diagrammatic representation. Economic interpretation of e 358

§ 3 (to Ch. XII, § 6). A premium rate of 4 per cent in one year and 3 per cent thereafter, means a price rate of 3.03 per cent the first year and 3 per cent thereafter 362

§ 4 (to Ch. XII, § 6). A price rate of 4 per cent in one year and 3 per cent thereafter means a premium rate of 37^ per cent the first year and 3 per cent thereafter 362

§ 5 (to Ch. XII, § 6). Mathematical relations between the rates of

interest as a premium and as a price 363

§ 6 (to Ch. XII, § 7) . Mathematical relations between the rates of

interest and discount 364

§ 7 (to Ch. XII, § 7). Mathematical relations between rates of discount for different time reckonings 366

§ 8 (to Ch. XII, § 8). Dimensions of rates of interest, discount,

and capitalization 367

XX ANALYTICAL TABLE OF CONTENTS

PAGE

§ 1 (to Ch. XIII, § 1). Formula for capital-value of a sum due in one year ........... 368

§ 2 (to Ch. XIII, § 1). Formula for capital-value of a sum F, due at end of any time t 368

§ 3 (to Ch. XIII, § 3). Formula for capital- value of a perpetual

annuity 369

§ 4 (to Ch. XIII, § 3). Formulae and diagrams for capital- value of annuities payable annually, semi-annually, quarterly, and continuously 369

§ 5 (to Ch. XIII, § 3). Diagrams for discontinuous and continuous income 371

§ 6 (to Ch. XIII, § 5). Formula for capital- value of a terminable

annuity 374

§ 7 (to Ch. XIII, § 5). Discussion of formulae for terminable

annuities by diagrams. "Total discount." " Total interest " 374 § 8 (to Ch. XIII, § 7). Formula} for value of bond . . .378 § 9 (to Ch. XIII, § 7). Alternative method for computing value of a bond 380

§ 10 (to Ch. XIII, § 7). Formula for a bond -when interest is

reckoned oftener than yearly 382

§ 11 (to Ch. XIII, § 8). Formula for capital-value of any series of

income installments 382

§ 12 (to Ch. XIII, § 8). Diagram and formula for deriving capital-value from a given continuous income stream .... 383

§ 13 (to Ch. XIII, § 8). Diagram showing the accumulated

"amount" of a given income stream 387

§ 14 (to Ch. XIII, § 10). Effect of reckoning semi-annually, quarterly, and continuously, on the rate of interest realized from the income of a continuously replenished stock of articles . . 388

§ 15 (to Ch. XIII, § 11). Influence of variation in the rate of

§ 16 (to Ch. XIII, § 11). Kepresentation of capital and income by

polar coordinates . • 393

Appendix to Chapter XIV

§ 1 (to Ch. XIV, § 5). When the interest rate varies, there are two rival concepts of " standard income " 396

§ 2 (to Ch. XIV, § 12). Effect of foreknown tax on increase of capital 398

§ 3 (to Ch. XIV, § 13). Unrestricted application of a true income tax impracticable •• • 400

ANALYTICAL TABLE OF CONTENTS xxi

Appendix to Chapter XVI

PAOB

§ 1 (to Ch. XVi, § 6). Mathematical coefficients of proTjability,

caution, and risk 403

§ 2 (to Ch. XVI, § 7). Formula for mathematical value of a riskybond 403

§ 3 (to Ch. XVI, § 10). Variability about a mean, as measured by the " standard deviation " 406

§ 4 (to Ch. XVI, § 20). Method of computing a pure level life insurance premium 410

INDEX 413

INTRODUCTION. Fundamental Concepts

Chapter I. Wealth Chapter II. Property Chapter III. Utility THE NATUEE OF CAPITAL AND INCOME

CHAPTER I

WEALTH § 1

The term " wealth" is used in this book to signify material objects owned by human beings. According to this definition, an object, to be wealth, must conform to only two conditions : it must be material, and it must be owned. To these, some writers add a third condition, namely, that it must be useful. But while utility is undoubtedly an essential attribute of wealth, it is not a distinctive one, being implied in the attribute of appropriation ; hence it is redundant in a definition. Other writers, like Cannan, while specifying that an object, to be wealth, must be useful, do not specify that it must be owned. They therefore define wealth as " useful material objects." This definition, however, includes too much. Rain, wind, clouds, the Gulf Stream, the heavenly bodies — especially the sun, from which we derive most of our light, heat, and energy — are all useful, but are not appropriated, and so are not wealth as commonly imderstood. Still other writers insist that an article, to be wealth, must be "exchangeable." But this restriction would exclude parks. Houses of Parhament, the Hague Temple of Peace, and much other trusteed wealth ; all wealth, in fact, which happens to fall into permanent hands. Although it is essential that wealth should be owned, it is not essential that it should contin-

4 NATURE OF CAPITAL AND INCOME [Chap. I

ually change owners. Again, many writers, like McLeod, omit the quaHfier "material" altogether, in order to make room for the inclusion of such "immaterial wealth" as stocks, bonds, and other property rights, and for human and other services. Property and services are, it is true, inseparable from wealth, and wealth from them, but they are not wealth. To embrace all these under one term involves a species of triple counting. A railway, a railway share, and a railway trip are not three separate items of wealth; they are respectively wealth, a title to that wealth, and a service of that wealth. Finally, a few economists, like Tuttle, have endeavored to break away from concrete objects entirely. The term " wealth," they maintain, applies, not to the concrete objects, but to the value of these objects. Much may be said in support of this contention. But as the question is chiefly verbal, that is, not a question of finding a suitable concept, but of finding a suitable word for a concept, it does not seem advisable to depart from the prevailing usage among economists.

Wealth, then, includes all those parts of the material universe which have been appropriated to the uses of mankind. It does not include the sun, moon, or stars, because no man owns them. It is confined to this little planet, and only to parts of that ; namely, the appropriated portions of the earth's surface and the appropriated objects upon it. The appropriation need not be complete; it is often only partial and for a particular purpose, as in the case of the Newfoundland Banks, which are appropriated only in the sense that the fishermen of certain nations have the right to take fish in their vicinity, while their waters are open to all men for all other purposes. In fact, it is doubtful if there are any objects owned so unrestrictedly that the owner of them may use them in absolute defiance of the wishes of others. By appropriation of any object is therefore meant that degree of appropriation to which the object is subjected.

Any single object of wealth is called an article of wealth, an item of wealth, or an instrument. The term "instrument" is perhaps the most convenient. It appears to have been first employed by John Rae in 1834.^

§ 2

Various classes of wealth may be distinguished. Wealth which consists of the earth's surface is called land; any fixed structures upon it, land improvements; and the two together, constituting immovable wealth, real estate. All wealth which is movable (except man himself) we shall call commodities. A third group includes human beings — not only slaves who are owned by other human beings, but also freemen who are their own masters.

It is true that freemen are not ordinarily counted as wealth; and, indeed, they are a very peculiar form of wealth, for various reasons: first, because they are not, like ordinary wealth, bought and sold; secondly, because the owner usually estimates his own importance so much more highly than any one else ; and finally, because the owner and the thing owned in this case coincide. Yet they are, like other wealth, "material" and "owned." These attributes, and others which depend on them, justify* the inclusion of man as wealth. But in order to concede as much as possible to popular usage, the following supplementary definition is framed: By wealth (in its more restricted sense) we mean material objects owned by man and external to the owner. This definition obviously includes slaves, but not freemen. But it is more difficult of appUcation than the wider definition first given, as it requires

^ New Principles of Political Economy, recently reprinted under the title Sociological Theory of Capital, Macmillan, 1905.

^ Among those writers who have included man in the category of wealth are Davenant, Petty, Canard, Say, McCuUoch, Roscher, Wittstein, Walras, Engel, Weiss, Dargun, Ofner, Nicholson, and Pareto.

6 NATURE OF CAPITAL AND INCOME [Chap. I

US to separate into arbitrary classes those persons who are intermediate between freemen and slaves, such as vassals, indentured servants, long-time apprentices, and negroes held in peonage. A man bound out to service for thirty years is almost indistinguishable from a slave, and if the term of service be long enough and the control absolute enough, the distinction becomes a distinction without a difference. On the other hand, the shorter the term of service, the nearer does his condition approach freedom. As a matter of fact, most workers in modern society are "hired," i.e. bound by contract to some extent and for some period of time, even though it be for no more than an hour, and to that extent are not free. In short, there are many degrees of freedom and many degrees of slavery, with no fixed line of demarcation.

Two concepts have been defined which may be designated as "wealth in its more general sense " and " wealth in its more restricted sense." There need be no confusion between them. Ordinarily, when the simple term " wealth ' ' is used, the former concept will be understood, and any propositions which hold true of this broader concept will necessarily apply also to the narrower one. If we have occasion at any time to refer to the latter exclusively, we may always make use of the full phrase, "wealth in its more restricted sense."

There are many admissible ways of classifying wealth, one being more or less desirable than another according to the purpose for which it is intended. The scheme on page 7 is not based on any one logical criterion, but is intended merely to give the principal groups into which wealth, as it actually exists, naturally falls. It scarcely needs to be stated that the various classes are not always absolutely distinct. Like all classes of concrete things, they merge imperceptibly from one into another. For this reason the classification is of httle importance

Sec. 2]

WEALTH except to give a bird's-eye view of economic science. In fact, the classification of concrete things is seldom of paramount importance in scientific study. Not classification, but analysis, solves scientific problems.^ riand ]

productive land ways of transit -

. building land f crop land grazing land timber land mining land hunting land fisheries

' railways roadways waterways

. parks land improvements -

' buildings improvements on highways L minor f overhead

underground

surfacing . bridging o

"3 r mineral raw materials -! agricultural

[ manufactured finished products slaves free r by being burned consumable -! by being eaten or drunk [ by being otherwise used

mechanical devices animals "hard money" . durable -I clothing and jewelry

furniture and works of art reading matter L minor

^ See the writer's "What is Capital?" Economic Journal, December, 1896, p. 516; and "Precedents for Defining Capital," Quarterly Journal of Economics, March, 1904.

8 NATUEE OF CAPITAL AND INCOME [Chap. I

§ 3

In the definition of wealth were included two attributes : wealth is material; and, it is owned. These attributes, materiality and appropriation, need to be considered separately. The remainder of this chapter will be devoted to the former.

An important and useful result of the materiality of wealth is that it provides a basis for the physical measurement of wealth. Wealth is of many kinds, and each kind is measured in its own proper physical unit. These units have been handed down to us from various sources and in great diversity, but all of them are in the last analysis arbitrary.

Many kinds of wealth are measured by weight-units. This is true of coal, iron, beef, and in fact, of most "commodities." Each unit consists of the weight of some particular piece of matter which is adopted for convenience as a standard. For instance, the English pound is simply a lump of platinum kept in London and called arbitrarily the pound.

Many articles are not so conveniently measured by weight-units as by space-units, whether of volume, area, or length. Thus we have, for volume, milk measured by the quart, wheat by the bushel, wood by the cord, and gas by the cubic foot ; for areas, we have lumber sold by the square foot and land by the acre; for length, we have rope, wire, ribbons, and cloth measured in feet and yards. All these units of length, area, and volume are also quite arbitrary or conventional. The definition of the English yard, for instance, is an imaginary line drawn between two small dots on gold plugs in a particular brass rod in London.

Many articles exist in more or less definite units which need only to be counted, as for instance, eggs or oranges, which are measured by the dozen. Similarly, writing paper is reckoned by the quire ; pencils and screws by the gross.

In such cases we say that the article is measured by number. But "number" is by no means peculiar to the last-named case. All measurement implies both an abstract number, and a concrete unit, as "ten screws," "six eggs," or "four pounds-of-granulated-sugar."

The last example suggests that in order to specify fully the unit of any kind of wealth, it is necessary to enumerate its particular attributes, or enough of them to distinguish it from other sorts of wealth with which it may become confused. Thus, it is often necessary to specify what "grade" or "brand" is meant, as "Grade A," "Eagle Brand," "Lackawanna" coal. Sometimes the special sort is denoted by a trade mark or hallmark. It is in this way that the attributes of particular kinds of wealth enter into the consideration of economic science, and not, as some have erroneously supposed, separately as an "immaterial" sort of wealth. The "fertility" of land is not to be counted as wealth apart from the land itself; it is the "fertile land" which is wealth. The "skill" of a mechanic is not wealth in addition to the man himself; it is the "skilled mechanic" who should be put in the category of wealth.

Of course, the number expressing the measure of wealth may be unity, as for instance, "one dwelling." Sometimes there is only one article of the particular kind in existence. There is but one Battery Park, one Buckingham Palace, one Koh-i-noor diamond, one Rhynd papyrus. Dealers call such articles "uniques." Strictly speaking, every article might be called a unique, even as no two grains of wheat are precisely alike; but for practical purposes we overlook minor differences and regard articles sufficiently similar as homogeneous.

§ 4

Thus each individual kind of wealth may be measured in its own special unit, — pounds, gallons, yards ; but for most purposes it is more important to measure the value of wealth.

10 NATURE OF CAPITAL AND INCOME [Chap. I

and this may be done in dollars and cents, pounds and shillings, francs and centimes, and so forth. This is also a species of physical measurement, but involves the principle of exchange. So much mystery has surrounded the term ''value" that we cannot be too careful to obtain correct and simple ideas on the subject. In the explanation which follows, the concept of value is made to depend on that of price; that of price in turn on exchange; and finally, that of exchange on transfer.