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Earned and Unearned Income by WILLFORD I 251 Certain of the independent establish- partisanship can never fail to be above ments should be incorporated into suspicion. existing or new departments. Others These changes in administrative or- must remain wholly or in part outside ganization would probably save the the framework of departmental or- Federal Government little, if any, ganization, but, where necessary, should money. On the other hand, they would be resolved into their several elements. certainly improve the efficiency of the Quasi-legislative functions should be services concerned. But most impor- assigned to agencies organized for the tant of all, they would greatly performance of such functions. Quasi- strengthen the government in the con- judicial functions should be assigned to fidence of the people. For the moment, agencies organized for the performance public opinion seems disposed to make .of such functions. The Interstate fewer demands upon the government Commerce Commission, for example, for the increase of administrative activ- and the Federal Trade Commission, ities than for a long time past. The perform certain duties which might opportunity should be seized to intro- not improperly be transferred to the duce sound methods of administration, Department of Justice. Others may to strengthen the administrative ma- be vested in any suitable partisan or chinery, and to accumulate a stock of administrative agency. The purely public confidence in the administrative executive duties of the Interstate capacity of the government which will Commerce Commission alone would stand it in good stead when opinion furnish ample employment for a large presently demands the assumption of bureau in the Department of Com- new responsibilities towards the pub- merce. Still other duties ought to be lic, and heavier burdens again fall upon transferred to agencies whose non- our administrative system. Earned and Unearned Income By WILLFORD I. KING Economist, N ational Bureau of Economic Research division of income into two &dquo;unearned&dquo; and which, at the same THEbroad categories denominated re- time, possesses characteristics that make spectively as &dquo;earned &dquo; and &dquo; unearned &dquo; it desirable or necessary to place it in finds little or no sanction in standard a separate category and perhaps to texts on economics, but nevertheless, measure its importance or volume. this classification is treated by many If there really is such a thing as &dquo; un- semi-scientific publicists as an accepted earned &dquo;income, where may it be found? form of differentiation, and a consid- The Single Taxer will assure us that it erable number of economists show a consists wholly, or at least principally, tendency either to use it in their writ- of rent of land or of profits made ings or tacitly to admit its validity. through speculation in land. The Since, then, the usage of this termin- Marxian will insist that it is made up ology is becoming increasingly common, of interest and the unreasonable gains it seems worth while to inquire whether of &dquo;profiteers.&dquo; The view, however, or not there exists a type of income which seems to find most general ac- which may justly be designated as ceptance is that all income arising 252 through the ownership of property is tion of whether or not, in accordance perforce unearned. with this principle, the income derived Property may legitimately be defined from property can ever legitimately as a legal title to anticipated income. be classed as earned. We may take Property and its income are, therefore, first the case of a man who works dili- such closely related phenomena that gently for another and receives as part it necessarily follows that if one is un- of his pay a due bill or note. Such a earned the other must be also; for what certificate of indebtedness is a typical is true of one is true of the other. What form of property; yet it is hard to see are the facts about both? how the most rigorous Marxian could In order to answer this question, it is contend that such property has not necessary first to determine upon a been earned. Granted that the note satisfactory meaning to be attached to has been earned, suppose that the note the term &dquo;earned.&dquo; As a first step in is exchanged for a house, is not the this direction, it is worth while to look house also earned property? If so, into Webster’s definition of the world. does it not obviously follow that the We find in his dictionary the word services which the house yields to the &dquo;earn&dquo; defined thus: &dquo;To gain as a owner are earned to exactly the same just recompense for one’s labor, serv- extent? Similarly, if the note is ex- ice, etc.&dquo; This concept doubtless ac- changed for a piece of land, is not the cords with the idea which the word land likewise earned? conveys to most of us and may be To once admit that any one kind of taken as a logical criterion in the clas- property may be earned, is thus evi- sification of income. dently equivalent to admitting that According to this definition, it is all property may be earned; and to ad- clear one earn unless he that does not mit that property may be earned is to renders a service. It is questionable, admit that the income from property if the rendition of a service however, may also be earned, for, as before makes the therefor always recompense stated, property is merely a title to truly earned. When one person serves such income. another inadvertently or unintention- At this point, however, the clever ally, he can scarcely claim to have Marxian will interpose an objection. earned a reward. most of us Probably While admitting that the face value of would agree that the act of re- earning the above-mentioned note quires that the service rendered shall may legiti- mately be referred to as earned, he require some effort or sacrifice on the will point out the fact that, when the part of the earner. With this idea in note falls due, the owner is to mind, we shall then set forth the follow- likely demand, not this earned ing definition of the term as the one only principal, but also an additional sum known as which will be adhered to in the suc- in the of the ceeding pages: Income is earned when interest, which, opinion has in no sense been it is obtained as a just recompense for Marxian, earned, but is extorted from the holder deliberate effort or sacrifice made by the merely income receiver for the benefit of the of the note. This analysis of the pay- payer of the reward. ment into two parts is entirely logical, and brings us face to face with the INCOME FROM PROPERTY question of whether or not all interest Having selected this definition of necessarily falls into the category of the term, let us next consider the ques- unearned income. 253 WEALTH AND ITS ACCUMULATION be contrary to the spirit of free peoples. Public sentiment in Presumably no student of economics general apparently considers them as undesirable will deny that a necessary entirely prerequisite institutions. What meth- to the advance of society from barba- satisfactory ods of about and rism to civilization is the saving of tan- bringing saving gible wealth and its accumulation into concentrated control over property are then available? relatively large masses, each mass under unified control. Thus, Many socialists advocate the idea being of these functions of efficient farming requires an aggrega- making processes tion of live stock, machinery, buildings, the state and of the state only. This solution of the is fences and other equipment, the pro- problem presumably a for the socialist state duction of which has required years of possible one, could retain each such of the in- work for some one. A modern factory year dustrial as the officials believed represents such a concentration of output it to devote to wealth on a much larger scale, since it necessary productive often embodies the results of millions processes. As yet, however, our elec- of days of toil. Modern productive torate have shown no disposition to the of the en- methods are therefore only possible place industry country in the hands of the because many persons have refrained tirely government. As as the voters remain of this from consuming some part of the out- long put resulting from their respective mind, saving and concentration must be secured in some other if civili- efforts, and because, in one way or way, another, single managements have zation is to continue. each been placed in control of large Now the fact appears to be indispu- aggregates of such savings. table that the vast majority of human Saving and concentration of the beings are so constituted that they pre- control (though perhaps not neces- fer present to future goods; that is, for sarily the ownership) of wealth are, example, they would sooner have their therefore, two foundation stones of cake today than a year hence; rather civilization. How can these two fun- see a play tonight than next season. damentals best be secured? Under these circumstances, the natural History affords examples of states in tendency is to consume all wealth as which powerful rulers or even private fast as it is created. individuals through arbitrary power Owing to this time preference for such as force of arms, the use of mo- present goods, individual initiative, nopoly or the enslavement of sections of unless stimulated by some special in- the population have accumulated prop- centive, fails to provide a sufficient erty on a scale sufficient to permit of a supply of saving to meet the needs of reasonable rate of economic progress.
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