Chapter IV: Section CXLVII

NATIONAL INCOME.--ITS STATISTICAL IMPORTANCE. [CONTINUED.]

The question frequently discussed, whether it is more advantageous to increase the gross income or the net income[147-1] of a people, may be readily answered with the assistance of our tripartite division. Since economic production has no other object than the satisfaction of human wants, the mere increase of the gross income of a people is a matter of indifference. An increase of the net income puts a people in a condition to increase either their numbers or their enjoyments. (See §§ 163 and 239.) The most desirable condition is where both these results are produced. It is fortunate for a people when the _free_ income of the nation increases by reason of the absolute or relative decrease of the cost of production, which adds nothing to enjoyment. But it is politically and morally to be lamented when it increases at the expense of the satisfaction of man's necessary wants, especially if the majority of the people deny themselves in this respect to produce that end. Sir Thomas More called the sheep of his time, to make place for which so many farm houses were razed to the ground, ravenous beasts, which devoured men and laid waste city and country.[147-2]

[Footnote 147-1: The greater number of writers, at bottom,
understand by this question only whether greater efforts
should be made to increase the wages of the lower classes or
the rent and rate of interest on capital paid to the higher.
(_Schmoller_, in the Tüb. Zeitschrift, 1863, 22.)]

[Footnote 147-2: The difference between gross and net income
was introduced into the science principally by the
Physiocrates. _Vauban_ (1707) had no conception of it, and
thirty years later a French minister, in his instructions
concerning the levy of the _vingtièmes_, dimly seeing that
the aggregate amount of the harvest was not clear gain,
ordered, to obtain the latter, that the cost of reaping and
threshing should be deducted. (_Dupont_, Correspondence of
_J. B. Say_, 404, éd. Daire.) By _produit net_, _Quesnay_
means the excess of original production over its cost,
considered from the personal point of view of the individual
landowner. This excess, it is claimed, can alone increase
the national wealth and alone support the "steril" class.

The political and military bearing of this very clearly
recognized. (102 ff., éd Daire.) Hence _Quesnay_, favors it
in every way; by large farming instead of small, by stock
raising on a large scale, supplanting home labor by cheaper
foreign labor, by machinery and the employment of manual
labor, etc.; 91 ff., 200 ff., 274 ff. The elder _Mirabeau_
teaches even that the goodness of a government or of a
constitution, and even national morality may be inferred
from the amount of the _produit net_. (Ph. rurale, ch. 5.)
_Stewart_, Principles, I, ch. 20. _Adam Smith_ gives greater
prominence to the gross income, and grades the principal
branches of national labor according as they increase the
gross product of the nation's economy. (II, chs. 1, 5.)
Similarly, _J. B. Say_, Traité, ch. 8, § 3; _Lauderdale_,
Inquiry, 142.

_Ricardo_ thoroughly reacts against this view, and considers
it a matter of indifference whether a net product (interest
on capital and rent) of a given amount be obtained by the
labor of five or seven million other men, so long as only
five million can live on it. (Principles, ch. 26.) Similarly
_Ganilh_, Systèmes, I, 218 ff.; Théorie, II, 96.
Controverted by _Malthus_, Principles, II, § 6. _Buquoy_,
Theorie der Nat. Wirthsch., 1815, 310 ff. _Sismondi_ has
ridiculed this predilection for the net product which in
_Ricardo_ corresponds with what the Germans call free
product (_freien Ertrage_), and which, contrary to Ricardo's
own opinion, he calls Ricardo's ideal, saying that according
to him, nothing more was to be desired but that "the king
should remain alone on the island and, by turning a crank
forever, do all the work of England through the
instrumentality of automata." (N. P., II, 330 ff.) An entire
people should value only gross product. (I, 183.) In his
Etudes, Essai, II: Du Revenu Social, _Sismondi_
distinguishes as elements of the gross national income: a,
pure capital, the return of outlay; b, that which is at once
both capital and income, and serves as family support
(capital as a necessarily remaining supply, income as the
product of the preceding year); c, net income, the excess of
production over consumption.

The Socialists of our day would prefer to see the whole net
income of a people employed in the satisfaction of the
necessary wants of an ever increasing population. By this
procedure, as a natural consequence, we should witness first
the curtailing of the taxing power, of the funds for the
satisfaction of the more refined wants and of the saving of
capital, nor would it be long before even the existing
generation would experience the bitterness of this "living
from hand to mouth." After a time, even the possibility of
progress and even of mere increase of population would
cease.

_Hermann_, Staatsw. Untersuch., 297 ff., has better than
almost any one else developed the theory of income, and he
lays most stress on the satisfaction of wants as the chief
aim of public economy. _Kröncke_, Das Steuerwesen, 1804, 381
ff.; Grundsätze einer gerechten Besteuerung, 1819, 93 f.,
may be considered the predecessor who prepared the way for
him. Compare the profound work of _Bernhardi_, Versuch einer
Kritik der Gründe die für grosses und kleines Grundeigenthum
angeführt werden, St. Petersburg, 1848. Many controversies
on this subject may be closed by a more accurate
understanding as to terms. Thus, for instance, when _Rau_,
Handbuch, embraces in the cost of production the necessary
maintenance of material-workmen, and of those engaged in the
labor of commerce; or when _Jacob_, Staatswissenschaft, §
496, and _Storch_, Einkommen, 116 ff., even the necessary
support of every class useful to society, their valuation of
the gross national income is in only apparent conflict with
our doctrine on the subject.]