proposed to exclude inheritances from the income of the recipients, on the ground that "regularity" is an essential attribute of income, and that inheritances are irregular.1 From some points of view this is reasonable enough, but for our present purpose the test of regularity is irrelevant. If an economist is paid for reviewing a book, or a barrister for conducting a case in court, once in his life, and once only, the payment is none the less income because it is a solitary payment. Similarly with the gratuities drawn by soldiers lucky enough to survive the recent war. A regular income implies regular additions to the recipient's means of economic welfare, and an irregular income implies irregular additions, but both are equally income, if we are interested in the recipient's means of economic welfare. On the other hand, the inclusion of inheritances in income is so considerable a breach with common usage, and the question of inherited wealth is given so prominent a place in the subsequent argument of this book, that the balance of convenience seems to favour the exclusion of inheritances, though not of course of the annual income derived from inherited property, from the category of income.

§5. It is interesting to compare the conception of income as developed in this chapter with the fiscal conception, which is adopted in assessments for income tax in this and other countries. It is not surprising that considerable differences should appear, since the purpose of the fiscal conception is to obtain revenue with the minimum of cost, trouble, and sense of injustice, whereas the purpose of our conception is to obtain an accurate comparison of the means of economic welfare available to different individuals during a given period of time.

For purposes of taxation, the distinction between gross

1 Compare Cannan, Wealth, pp. 145-146, Seligman, Income Tax, p. 20, Loria, La Sintesi Economica, p. 41.

and net income is always admitted in principle.1 Questions of detail, as to where the dividing line should be drawn, need not be entered into here. The principle that tax payments are not income is recognised in the American, though not in the British, income tax. The principle that gifts are income to the recipient, but not to the giver, is reversed in the British Income Tax Law, chiefly no doubt on grounds of administrative convenience. If a father makes a voluntary allowance to his son, the father pays income tax upon the amount of the allowance, but the son does not.3

In this country, though not in America, income tax is levied on the annual value of houses occupied by their owners, but it is nowhere attempted to levy it on the annual value of such personal property as furniture, clothes, etc., though these are liable, at their capital value, to inheritance taxes in most countries. Income tax is not levied on that part of a man's income, which consists of goods produced by him for his own use, nor services performed by him for himself, nor of goods and services gratuitously supplied by public authorities, nor of free and unappropriated goods. Here again, administrative convenience, and the comparative smallness of items difficult to value, is a sufficient explanation.

Inheritances are not now subject to income tax either in this country or in America, but are subject to special inheritance taxes which may plausibly be regarded as

་ ་་ 'By income is always meant net income, as opposed to gross income." Seligman, Income Tax, p. 19.

2 Seligman, Economic Journal, 1914, p. 64. But in England, though a man is taxed on his income tax, he is not, in principle at all events, rated on his local rates. For the rateable value of property is supposed to be based upon the rent which an occupier, who has also to pay the rates, would be willing to pay. Compare Cunynghame, Geometrical Political Economy, pp. 76–77.

* But, though a voluntary allowance is not income to the recipient for the purpose of paying income tax, it is income for the purpose of disqualifying him from an old age pension.

supplementary income taxes. It is interesting to notice that in America the proposed Federal Income Tax of 1894 treated both inheritances and gifts inter vivos as income to the recipient, while Professor Seligman suggests that the exemption of inheritances under the Federal Income Tax Law of 1913 was partly due to the expectation, since realised, "that the federal income tax may before long be supplemented by a federal inheritance tax." As regards other irregular receipts, the mere fact of irregularity does not give exemption from taxation. For example, in this country it was necessary to exempt war gratuities from income tax by means of a special clause in the Finance Act of 1919.

1 Economic Journal, 1914, p. 61.

CHAPTER III

THE SOURCES OF INCOME.

§1. In all modern societies the two chief sources of income are the performance of work1 and the ownership of property. Within the category of work we may, for certain purposes, draw various broad distinctions, as, for example, between comparatively skilled and comparatively unskilled work, or between brain work and manual work, or between those who work on their own account, such as doctors, lawyers, artists, and employers of labour, and those who work under the supervision of another. It is possible, however, to reach certain general conclusions concerning the aggregate income from work, without taking account of the great differences which exist both in the nature of various kinds of work, and in the amount of income obtainable in various occupations.

Within the category of property, again, many economists, as we have seen, have drawn a sharp distinction between land and capital, that is to say, between those useful material objects which are provided by nature and those which are fashioned by man. But it has already been argued that in the traditional theory of distribution too much stress was laid upon this distinction. To speak of land, labour and capital as "three co

1 The word "work" is more comprehensive than the word "labour," and is, therefore, preferable from our present point of view. For in ordinary language only certain sorts of work, mainly manual work as distinguished from brain work, are spoken of as "labour," whereas it is important here to group together all incomes from work of every kind on the one side and all incomes from property of every kind on the other.

ordinate factors of production" is misleading. For land and capital are far more nearly akin to one another, as sources of income, than either is to labour.1 As regards capital, a further distinction has been suggested by modern analysis. It has for some time been recognised by economists that interest on capital is primarily the price paid for what is sometimes called "waiting," that is to say the price paid in order to induce men to postpone part of their consumption, or, in other words, to save part of their incomes. But it has recently been pointed out that interest is paid in most cases, not only for "waiting," but also for "uncertainty-bearing," or, in other words, for the exposure of resources to the risk of total or partial loss. Thus it is common knowledge that, in order to secure sufficient capital, an undertaking which is reputed to be risky must offer a higher rate of interest than one which is reputed to be safe.

3

Though sometimes associated with work, as, for instance, with the work of business men and inventors, uncertainty-bearing is in practice most often associated with waiting in the provision of capital. Analytically, however, it is quite distinct both from work and from waiting. The conception of uncertainty-bearing is essential to a true understanding of certain economic problems, but here so ultimate an analysis of capital is not required. Nor, for the most part, will it be necessary to distinguish capital from land. We can reach general conclusions concerning the aggregate income from property similar to those concerning the aggregate income from work.

1 " Organisation," again, which has sometimes been treated as a fourth main factor of production, is simply a special kind of work. 8 "1 Uncertainty-bearing is a clumsy, though precise, word, and "risk-taking" is only a trifle better. Enterprise is a better word than either, but it is commonly used in a restricted sense, and it is doubtful whether it is worth while attempting to broaden this wellestablished meaning.

See Pigou, Wealth and Welfare, pp. 95-103. Compare also Withers, Poverty and Waste, pp. 55-60.