INCOME. — It is the increase in wealth, considered over a period of one year, arising from the productive employment of labor or capital, and which may be consumed without diminishing either the assets from which it derives or their productive capacity.
COLLECTION
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(phot. Catholic Encyclopedia)
RECUEIL DES HISTORIENS DES GAULES — Frontispiece of the first volume, Paris 1738 — Copy from the Vatican Library.
If it derives from involuntary causes, that is, causes not dependent on labor or capital, technicians speak rather of rent (v.) or of extraordinary gains.
Income is generally expressed in money and comprises: wages (v.) relating to the provision of labor; interest (v.) relating to the provision of monetary capital; profit (v.) relating to the provision of real capital. There are also mixed incomes, which are distinguished into real-estate incomes (houses and land) and movable-property incomes (from securities). An individual’s income expresses his economic power, and often also his social position. National income is the total income of a nation: it may be calculated by the real method, that is, by adding together the goods produced and deducting their cost, or by the personal method, by adding the incomes—not derived, but merely originating—of individual natural or juridical persons.
Some understand income as a typically business-related fact: it is then the annual increase in business capital resulting from management, that is, excluding extraordinary gains and cyclical incomes; or the difference between costs and revenues, to be adjusted on the basis of economic, monetary, and social values at the time of production. The need for periodic accounting (the balance sheet) while the enterprise continues its activity and many of the constituent elements of income are still in the process of formation, as well as the possible criteria of valuation and forecasting, lead to a certain approximation in determining business income. Hence the rule that «income is determined only in exchange», while increases in the value of securities, goods, and currencies must be recorded in special fluctuation reserves.
Net income is the definitive income, that is, income cleared of every expense incurred in producing it: refined income is the term for net income cleared also of the share attributable to industrial risks, as opposed to gross income, which instead includes an insurance premium against the risks of loss of capital, immobilization, and depreciation. Contrary to what is generally believed, the risk component (e.g., in the interest on loans) represents not a small proportion but the greater part of the interest: indeed, in cases of almost absolute security (a deposit with a bank of issue), interest is nil or negative.
The concept of refined income is important from two distinct but related points of view. The first corrects the criterion of classical, or liberal, economics, according to which the automatic distribution of capital would be determined by the height of income: this is true only of refined income and not of gross income. The second point of view makes it possible to provide a solid basis for measuring value (v.).
The so-called social problem revolves around income and its distribution: it draws its life and substance not so much from the debated question of ownership of the means of production as from the real or supposed inequality in the distribution of income among the factors that contributed to producing II. When, in fact, capital yielded the maximum and income were distributed equitably according to justice and merit, the question of ownership would lose its importance and relevance (v. REDISTRIBUZIONE).
Income is also a discriminating basis in the tax system: alongside taxation of wealth, which is less just and economically dangerous, taxation of income is fairer, economically sounder, and socially less ruinous than taxation of consumption, except where the latter is plainly frivolous.
The portion of income, real or monetary, not destined for immediate consumption constitutes saving (v.): this may either be hoarded, remaining unproductive and exposed to the danger of depreciation (v.), or invested productively to form new income and consequently new saving. Income thus reveals itself as the factor that determines and preserves the dynamism of the productive cycles from which consumption, that is, well-being, concretely springs. The importance of this function, already highlighted by halloism (v.), forms the basis of Keynesian theory (v. KEYNES) known as the multiplier theory.