For our present purpose, however, a less ultimate analysis is more useful, and the category of income from civil rights stands out sufficiently clearly in the light of the preceding discussion.

CHAPTER IV

AGGREGATE INCOME FROM CIVIL RIGHTS AND FROM PRIVATE GIFTS.

§1. In this chapter we shall consider briefly the causes which determine in any community the aggregate income from private gifts and from civil rights respectively, and the causes which determine the size of these aggregates relatively to the aggregate income of the community from all sources.

The aggregate income from private gifts will be widely different, according as we regard individuals or families as income-receivers. For in the former case all the purchasing power, which one member of a family derives from work, property or civil rights, and transfers to, or devotes to the benefit of, other members, will be income from private gifts to those other members, while in the latter case it will be income to the family from work, property or civil rights, as the case may be. It seems more convenient here to regard the family, and not the individual, as the income-receiver, and this leads us to adopt the lower estimate of aggregate income from private gifts.

§2. The absolute amounts of the aggregate income from private gifts and from civil rights depend primarily on public opinion operating, as regards private gifts, chiefly through individual action and, as regards civil rights, through collective action by way of legislation. They depend, secondarily, upon the absolute amount of the aggregate income from all sources, and, incidentally,

upon the effects on production of the transfers of income involved in various private gifts and civil rights.

Private gifts may be divided into three classes, (1) substantial gifts inter vivos, (2) small gifts of a charitable character, (3) small gifts not of a charitable character.1 The distinction between (2) and (3) is not clear cut, but is pretty obvious in practice. Small gifts, which are not charitable, are largely reciprocal. A pays for B's dinner one day; B pays for A's another. Small gifts which are not charitable thus largely cancel one another, as between different persons. They are not of great quantitative importance, and produce very small indirect effects upon production. We may therefore ignore them, and restrict our attention to substantial gifts inter vivos, and to small gifts by way of charity.

Apart from changes in law and opinion, an increase in aggregate income from all sources will probably lead to an increase in substantial gifts inter vivos and may or may not lead to an increase in charity. For on the one hand people will think, when their incomes increase, that they can afford to be more charitable, while on the other hand it will be thought that there is less need for charity, when the incomes of those who would be the recipients of charity increase also.

Changes in the law of inheritance may increase the amount of substantial gifts inter vivos. Changes in law and opinion will also affect the amount of private charity. As the aggregate income of the community increases, the standard of poverty, in terms of income, is likely to rise,

1 Professor Pigou points out (Wealth and Welfare, pp. 385-388) that some benefits obtained under schemes of mutual insurance are analytically equivalent to "income obtained from the gift of a friend." From our present point of view, however, such benefits are best regarded as income from property, except in so far as the benefits are paid from a state subsidy to insurance, in which case they are income from civil rights.

Compare Part IV., Ch. IX. § 9 below.

N

and, independently, the sense of social obligation towards the less fortunate members of the community may become keener. Both these factors will make for an increase in private charity. On the other hand, changes in law, by which the State takes over functions previously left to private charity, will tend to "dry up the springs of private charity, and hence to diminish its amount. In such cases income from civil rights will be substituted for income from private gifts. The reaction upon production of the receipt of income from private charity is most conveniently considered along with the reaction of the receipt of income from civil rights at the end of the present chapter.

§3. Income from civil rights, as defined in the last chapter, is a miscellaneous category. It includes, as we have seen," relief" under the Poor Law, and the benefits provided under a number of statutes, mostly of recent origin and difficult to classify in any very instructive fashion. Aggregate income from civil rights depends primarily, as we have seen, on public opinion expressing itself through legislation. During the past twenty years in this country the Old Age Pensions and National Insurance Acts, together with amendments widening the scope of the Workmen's Compensation Act, the Education Act, and other measures, and finally War Pensions, though the total of the latter will gradually diminish, have rapidly increased this aggregate, and it is likely that the increase will continue in the future. Various far-reaching and interesting schemes have been proposed, the adoption of which would strongly stimulate this increase.1 Professor Macgregor estimated in 1911 that supports to wages," in the form of working-class income from private charity and from "national services in favour of the working classes," amounted to at least

1 Compare Part IV., Ch. II. below.

15% of the annual wages bill.

This estimate was made

It

before the passing of the National Insurance Act and before the additions made by the war to Pensions. was also made at a time when the value of money was considerably greater than it is now. It is important to notice that most income from civil rights under modern statutes is fixed in terms of money. In so far as this is so, a fall in the value of money diminishes the real income from such rights, and a rise in the value of money increases it.

§4. The size of the aggregate income from private gifts and from civil rights, relatively to the aggregate income from all sources, depends in part upon the reactions on production caused by the transfers involved in private gifts and income-bearing civil rights, and these reactions may in turn influence the absolute size of the aggregate income from private gifts and civil rights. The type of question which presents itself in this connection is the following: What effects will be produced, in various circumstances, by a transfer of resources from A to B, and by the expectation that such transfers will be repeated in the future, upon the willingness and upon the ability of A and B respectively, to work and save ? Such questions cannot be fully discussed here. But income from civil rights or private gifts which contributes effectively to the intelligence, health, and efficiency of the recipients will generally react favourably on production. In these respects, for example, public expenditure on education and on insurance against sickness and unemployment stands on a different and better footing than expenditure on old age or disablement pensions, desirable though the latter may be. On the other hand it has been argued that the effect of such legislation as the Workmen's

1 Evolution of Industry, p. 136.

Compare, for a full and interesting discussion of them, Pigou, Wealth and Welfare, Part III., Chapters VIII.-XII.