SECTION CXLV.. Income.--Gross, Free and Net.

INCOME.--GROSS, FREE AND NET.

In all income, we may distinguish a gross amount, a net amount and a free amount.[145-1] The gross income of a year, for instance, consists of all the goods which have been newly produced within that time. The net[145-2] income is that portion of the former which remains after deducting the cost of production (§ 106), and which may therefore be consumed without diminishing the original resources. Only the new values incorporated in the new commodities make up the net income. Evidently, a great portion of what is considered in one business the cost of production is net income in a great many others; as for instance, what the person engaged in one enterprise in production has paid out in wages and interest on capital. By means of this outlay, a portion of his circulating capital is drawn by others as income, and, on the other hand, a portion of their original income is turned into a portion of his circulating capital.[145-3] Free income, I call that portion of net income which remains available to the producer after his indispensable wants have been satisfied.

An accurate kind of book-keeping which keeps these three elements of income separate is more generally practicable as civilization advances. We might call it the economic balance. Where commerce is very thriving it is even customary to provide by law that those classes who need it especially should have this species of book-keeping. People in a lower stage of cultivation, with their poetical nature, are unfriendly to such calculations.[145-4] [145-5] And where natural-economy (Naturalwirthschaft) or barter prevails, a book-keeping of this kind of any accuracy is scarcely practicable. The ratio which net income bears to gross income is a very important element to enable us to judge of the advantageousness of any method of production. If every producer should succeed in consequence of keeping his books in this manner, in determining exactly the cost to him of each of his products, this would be an economic progress similar to that of general spread of good chemical knowledge in the arts. On the amount of free income, on the other hand, depends all the higher enjoyment of life, all rational beneficence, and the progressive enrichment of mankind.[145-6]

In England, this kind of book-keeping is very gradually coming into use even among farmers, while Simond, Voyage en Angleterre, 2 ed., II, 64, Dunoyer, Liberté du Travail, VIII, 5, say, "it would in France be considered as ridiculous as the book-keeping of an apple vendor." In Germany, there have been for some time past, manufactories of commercial books. Besides, the remarkable difference brought out by the income tax in England between the exact statements made by large manufacturers, etc., and by those engaged in industry on a medium or small scale, bears evidence of the better way in which the former keep their accounts, the cause and effect of their better business in general. Compare Knies, in the Tübing. Zeitschr., 1854, 513. On the best mode of determining income, see Cazaux, Eléments d'Économie publique et privée, Livre, II. It is especially necessary to keep an account of the increase or diminution, even when accidental, of the value of the fixed capital employed.]