Knowledge that Transforms

BEFORE COMMENTING on Dr. Graves' note, I wish here to put on record a recent change in my own terminology. Dr. Graves quotes me correctly as having formerly said that capital increase is properly But since my efforts thus to restrict the use of the term to have met with little success, I have decided to capitulate on that point. In a book which I am preparing on What should be taxable income? I am suggesting that, paradoxically, we may avoid ambiguity by giving two meanings to income. One is or or simply yield. The other is servicesplus-capital-income or or simply enrichment (sometimes called accretion-sometimes earnings). This concession is made in deference to the fact that usage vacillates between the two concepts, and that both are useful. They are well exemplified in the stock market in the yield of a stock as contrasted with its earnings. I am also prompted to make this change by the hope of helping to lift the discussion of income from the level of words to the level of ideas. Apart from terminology, however, I have seen no reason since 1897 to change my attitude. Nor do I find anything in Dr. Graves' discussion which would incline me to change it. In summarizing my conclusions, Dr. Graves is likely to mislead many readers: (a) They may not understand that in what he calls my assumption (2) negative psychic services were omitted explicitly in order to create a simplified case-just as he himself makes various assumptions to create his five special cases. In my ECONOMETRICA article, negative psychical services were far from overlooked or disregarded. But I was leading up to the problem of taxation in which negative psychical services have to be either neglected or treated by rule of thumb.' (b) The same is true of his reference to my assumption (5) to the effect that services are worth their cost. In my article, much attention was given to the discrepancies between the worth of services or uses and money cost. But, with his eye on only my most simplified case, Dr. Graves remarks:

BY THE EXPRESSION of we mean monetary value of those consumers' goods which are in fact consumed in course of a certain period of time by an average family belonging to a given stratum of a population. Consumption of given quantities of consumers' goods defines that general state of want-satisfaction we call the of of family in question. Any of living may be reached by various combinations of quantities of consumed goods (depending on relative prices and monetary expenditures by consumer). If in course of two periods of time, general status of wantsatisfaction of family-or standard of of that familyremains constant, then we obtain index of cost of by dividing cost of living at one period of time by cost of living at other period. This index shows relative change occurring in monetary cost of those consumers' goods which are necessary for maintenance of a certain of living. Thus in computing true index of cost of living, we compare monetary cost of two different combinations of goods which are connected solely by condition that during consumption of these two combinations, general status of want-satisfaction (the of living) is same. In practice, however, usual method of computing indexes of cost of living is so-called method of aggregates. This method consists of calculating cost of a given aggregate of consumers' goods taken in amounts corresponding to average or normal consumptiona and at prices prevailing at a given time, and dividing it by