Spencer Heath Archive

Item 1549

Letter to the Editor of The Wall Street Journal, 44 Broad Street, New York, New York

July 5, 1955

Original is missing.

Sir:

Apropos of the national Income:

When a man acts for himself alone, he does not sell or serve anything, either services or goods or the use of property, to anyone but himself. He puts out nothing to anyone and he has no income from any man.

But men who live under the blessings of a free and general exchange system do put out both services and goods and the use of properties that are so sought by many others that they give equivalent services or goods or, more generally, what amounts to an order for them, in exchange. Unless the exchange is direct and limited, as in barter, a numerical money or common credit instru­ment is employed as the interim measure to determine the real value, which is the quantities of other goods and services that are to be received in exchange. The Market, as a social institution, by the practical consensus of those bidding for them, appraises the money value of the services or goods offered and sold, and this money value determines the amount of the real value, in services or goods similarly appraised, to be purchased and, thereby, received in exchange. This completes the exchange.

The category, “services or goods,” is objective. It refers to whatever the general custom of Society, the common law of the market, accepts and sustains as the proper object of the verb to sell or to lease or to lend. — All subject-matters of contracts. It includes not only the services of persons but also the use or services of properties or of rights to property, — whatever the mores of the market treat as property, as being suscep­tible of ownership and exchange and thus of being the subject-matter of contract.

As regards sale of their use and the receiving of income therefrom, services and properties and goods are all in the same category. Income from labor or from per­sonal services is income for or from the use of them, the use being usually gauged by time or to some succession of events, as in piece wages, or to the completion of some special performance or event.

Income from properties or goods is income for their use, either limited in time, as when leased or rented at a profit, or for their use unlimited in time, as when sold at a profit outright. The process of the market does not in any wise change or affect any properties, services or goods themselves, but only the relationships between or among the parties with respect to them. What is in reality exchanged is not so much the properties or services themselves as the title or ownership of them either in a limited or to an unlimited degree.

The Market is the great pooling and distributing organ of Society. Anything the first time sold is con­tributed to the Market. It is actually in the market and being administered as capital during such time as it is in course of being rented or sold instead of being con­sumed by the owner himself. The market is the universal clearing house that measures and balances, in terms of value-exchange units, everything that is bought against everything that is sold. It thus provides facilities for non-political distribution, by exchange of services, properties and goods, for distribution of anything that can be measured in value units, and not of anything else.

The total of new contributions over a period is the total production that commands income for that period. Anything sold that was not previously purchased is a new or first contribution. And when anything is sold for more value units than those given for it (there having been no inflation meanwhile), such increase of value, and that only, represents a new contribution of services or goods. (If for less than given for it, then its decrease of value represents a distribution out of the market — loss of capital without replacement and loss of profit or income therefrom.) The sum total of all value units, net above costs, received during a period represents the total of all net contributions thereto above costs. This is the total net income for that period. Such is the national income.

It is true that men in society do perform minor services and do make and supply some products (not capital) to themselves, their dependents and friends, without making them any subjects of contract or objects of exchange. The same is true of inheritances and gifts. Such services, properties or goods are not thereby contributed to the market. Nothing being sold by their recipients, gifts bring forth no income or value and are therefore not to be reckoned as any part of or any addition to the national income. The national income only applies to such income as arises from new or original contributions of services and of goods. The production of services and goods may exceed this, but only by such amount as is produced with­out being contributed to the exchange system and therefore does not bring forth any income or exchange value.

The national income as defined above represents all of the new or net services and goods pooled in the market, as reflected by the value units that the market awards to the contributors, and in the spending of which, soon or late, the market normally returns equivalent services and goods to, or upon the order of, those who have contributed.

But a large part of this income to contributors is surrendered, voluntarily or involuntarily, to non-contri­butors, — whether direct as by taxation, or by inflation with false value units not arising in consequence of any market contribution — and by public borrowings that can never be repaid unless by further borrowings or by further false money issues. The direct result of all this is that the real income, the return of services and goods to contributors, is diminished by the entire quantity of services and goods that government purchases out of the common market system without having made or at any time making contribution thereto.

When the giving of gifts, either in money or serv­ices or in other forms of property, is voluntary, there is no frustration either of the individual or of the soci­etal will. But when it is involuntary, as in taxation or other seizures, those who contribute are forced to receive back out of the pool less than they contribute to it. This frustrates both the individual and the soci­etal will and destroys the incentive of all parties, both contributors or non-contributors, either to perform serv­ices or to produce goods; the one because they must give without getting, the other because they can get without having to give.

The societal organization, based as it is on the inviolability of persons, their properties and possessions, has only partly evolved out of the total tyrannies of the past. With all its marvels, it is yet far from complete. Only so far as the free society extends its market economy, its system of free contract and exchange, into the field of common or public services can the public authority have any voluntary income, any income that is its own. Until then the public authority can be maintained only by demoral­izing the equities of free contract and exchange, and that only so long as any system of free contract remains. That is why all political governments fail and men must revert back towards more primitive modes of subsistence directly and precariously on the land, where they can have “production for use and not for profit” without any of the social benefits of cooperation by contract and exchange.

SH/m                         Very truly yours,