Chapter V: Section CXLVIII: The Two Phases of Income

In every income which has anything to do with other incomes, it is necessary to distinguish its immediately productive side, and its profit or acquisition side. It is necessary, in the first place, that all the products made by private parties should, so to speak, be put into the common treasury of the national economy, and that each should thence draw his own private revenue. Justice requires that there should be a perfect correlation between the two; that each should enjoy precisely the quota of the national income to the production of which his person or his property contributed. A just appreciation of the relative productive power of the divers branches of labor constitutes one of the chief bulwarks against the inroads of destructive socialistic theories. The person who calls a good doctor or a good judge unproductive should, to be consistent, call those who by their greater intelligence are fitted to superintend agricultural and industrial enterprises unproductive, also, as is done by the coarser socialists with their apotheosis of mere manual labor. Unfortunately, such a settlement as is above contemplated among the different factors of production, whose owners are desirous to divide the common product among them, is possible only where the factors of production are either of the same kind, or can be reduced to a common denominator.[148-1] But if justice pure and simple were meted out, no man could subsist. Love or charity must supplement justice in order to assist those (and especially such as without any fault of theirs) who are not able to produce anything, or enough to supply those wants, for instance, children and the poor.

As the net national income, following the three great factors of all economic production, is divided into three great branches, rent, wages and interest on capital, the net income from any private business may be reduced to one or more of these branches.[148-2] The three great branches of income may be considered with advantage from a great many different points of view. We may inquire in the case of each of them: concerning its absolute magnitude, its relation to the aggregate national income, to the magnitude of the factor of production, of which it constitutes the remuneration; by what number of men it is shared, and what number of wants it satisfies.[148-3] Lastly, the difference between the amount stipulated for, and the original amount of both rent and wages, as well as the interest of capital, is of special importance. The former consists in the price paid by the borrower for the use of the factor of production to the owner; the latter in the immediate products which the employment of the same productive power brings on one's own account. Evidently, the original amount is, in the long run, the chief element in the determination of the stipulated amount. While the former depends more on the deeper and more durably effective elements of price, especially the cost of production, the value in use and the paying capacity of purchasers; the latter is conditioned more by the superficial variations of supply and demand, and even by custom. For our purposes, the former is by far the more important, but, at the same time, by far the more difficult to perceive.

[Footnote 148-1: This is possible between labor and capital,
at least in so far as a comparison can be instituted between
the sacrifice of human rest there is in labor and the
sacrifice of enjoyment in the building up of capital. But
the person who introduces an entirely unimproved piece of
land into the service of production, stands to the laborer
as well as to the capitalist in a relation which is entirely
incomparable with any other. (See § 156.) The doctrine of
former agriculturists, that one-half of the harvest was to
be ascribed to the soil and the other to the manure, would
not suffice here, even if it were correct. Compare _Fraas_,
Gesch. der Landbau- und Forstwissenschaft, 257. But in the
production of a calf, the coöperation of a bull and cow are
necessary. Yet no one is in condition to determine what
portion of the calf is to be accounted as belonging to
either. If the bull and cow belong to different owners, the
relation of supply and demand, and the deeper causes that
determine them, decide in what proportion the value of the
calf is to be divided among them.]

[Footnote 148-2: Among the greatest services rendered by
_Adam Smith_ is, his complete demonstration, that any income
may be resolved into one or more of the three great branches
of the national income. (I, ch. 6.)]

[Footnote 148-3: _Ricardo_ has not unfrequently bewildered
uncritical readers, by his habit--in which he is by no means
always consistent--of using the expressions higher and lower
wages, higher and lower profit of capital, to designate not
the absolute greatness of these branches of income, either
in money or in the wants of life, nor their greatness from a
personal point of view, but only their relative greatness as
compared with the aggregate income, the measure of the quota
of the aggregate product which is divided among workmen,
capitalists, etc. And yet, in the case of most economic
questions, this is without doubt the less interesting side.
Compare the polemic of _R. Jones_, On the Distribution of
Wealth, 1831, I, 288 ff.; _Senior_, Outlines, 142 seq.;
_Carey_, On the Rate of Wages, 1834, 24. Thus, according to
_Ricardo_, the increase of one branch is possible only at
the expense of another, while in the case of flourishing
nations, the three branches increase absolutely and
together. _Ricardo_, himself, was by no means unacquainted
with this, as may be seen from _Baumstark's_ German
translation of his work, pp. 37, 108 ff.]

CHAPTER II.

THE RENT OF LAND.