Monday, October 26, 2009

Does "Income" Have Any Meaning?

You say to me, "Please hold this apple for thirty seconds and return it to me." I then take the apple, and return it to you. Did you just make "income"?

Then you say to me, "Please hold this 25-cent apple for thirty seconds, and then return either the apple or 25 cents to me." I take the apple and return 25 cents to you. Now did you just make "income"?

If you answered the first question with a "yes", then please explain how you just became richer by shuffling an apple across a table and back.

If you answered the first question with a "no" and the second question with a "yes", then please explain how replacing your property with something of equal value has made you richer.

Obviously, there is something very wrong with the idea of "income".

Point #1: What About Expenses?

Let's say you give me an apple in exchange for my tomato. What is your income? A) The "market value" of the tomato? Or B) The extra gain in your pleasure derived from trading up from an apple to a tomato?

If you answer (A), then if you pay $1000 for a box of apples and sell them at a loss for $900, your "income" is nevertheless $900. You just got $900 richer! Would you care to pay taxes on this $900?

Now let's say you spent your last four years in school, paying tuition. You graduated and now have a job. What is your income from this job? What you see in your paycheck? Or, should your "true" income reflect the cost of your tuition? And the several years of forgone income when you went to school instead of having a job? Aren't those expenses similar to the $1000 you paid for the apples?

Let's say that your job happens to pay $100K per year, and that you would not have accepted less than $75K for this job. That is, the job is "worth" $75 to you. Wouldn't your gross income therefore be $25K? Isn't that $25K similar to your gain in trading up from an apple to a tomato?

So, when we see that someone has an income of, say, $500K, what does that really mean? If we don't know how much was invested to get that $500K, how much was forgone to get that $500K, and what your "trade up" gain (i.e., your marginal utility) was to get that $500K...then we really don't know what your income is.

Point #2: Exchange results in "income" in both directions

You sell me an apple for 25 cents. You gained 25 cents and I gained an apple. Your income is 25 cents and my income is an apple. Of course, you are not really 25 cents richer -- and that's because you had to surrender an apple. And I am not richer by an apple -- because I had to surrender 25 cents. But yet, we are both richer because if either one of us did not gain, then the exchange would not have taken place. By how much are we richer? You are richer by the 25 cents less the value of that apple. And I am richer by how much I value that apple less 25 cents. And it is very very difficult to calculate those amounts.

But the main point here is that that "income" accrues to both parties. But that is rarely recognized. To say nothing, of course, of actually calculating what those two incomes actually are.

Point #3: "Income" is a pejorative term for "adding value".

You sell apples for 25 cents each. Your customers place a value on these apples of at least 25 cents each. (If they valued each apple at less than 25 cents, they would be pretty stupid to buy any.) But many customers undoubtedly place a higher value on the apples. Some of your customers (but you don't know which ones) would pay 35 cents and are getting a 10 cent discount.

That is, you are making all of your customers better off by selling those apples. Some are made a little better off, and some are made a lot better off. But they all, via a simple exchange, now posses greater value. If you sold four apples, you just increased value by one dollar. And if your four customers secretly would have paid 50 cents for each apple, then you just (unwittingly) increased value by two dollars.

So, why must people say that others "make money" instead of "create value"? Isn't the point of the transaction to create value? My guess is that envy drives people to tear down those who are productive -- and demonize them by casting them as criminals who are undeserving of their wealth.

The crime is "income" and the penalty is "redistribution". They're both meaningless terms that are part of the lexicon of leftist/statist propaganda -- and this malignant ignorance has been threaded into the popular culture so successfully that it is universally accepted as a mass virtue, to the detriment of almost everyone.