AQ MISC. PUBLICATION 218, U. S. DEPT. OF AGRICULTURE 
yields no money or other tangible returns has value as capital but 
yields no income. Only in the case of the economic definition, how- 
ever, is there a direct relationship between the value of the income and 
the value of the capital from which it flows. The value of capital is a 
mathematical function of the value of income in the economic sense. 
This does not hold of the value of income in the sense given to it in 
ordinary business usage. 
In actual tax legislation, the concept of net income follows gener- 
ally the business idea, including only incomes and costs that appear in 
tangible forms and not being entirely consistent even at that. For 
one thing, the income tax itself is not deducted i in determining taxable 
net income (though this is not a serious matter in practice). 
Throughout this report the term income (of capital), unless limited 
specifically or by the context, will be used in the economic sense as 
defined above, including all of the services rendered by capital. 
THREE TYPES OF INCOME 
Three types of income may be recognized, depending on the relation 
of the current income realized to the interest on the capital value of 
the investment. (1) The current income from a property may be 
equal to the interest on its capital value. In this case there is what 
may be called ‘‘annual sustained yield’’, since the capital is neither 
being increased nor depleted from year to year and the annual income 
will continue in the same amount as long as present conditions affect- 
ing value remain unchanged. (2) The current income may be less 
than the interest on the capital. In this case there is what may be 
called “deferred yield’, since the capital is being built up at the expense 
of current income, which may be regarded as deferred for realization 
at some future time. (3) The current income from a property may 
be greater than the interest on the capital. In this case, which may 
be called ‘‘depletion yield’”’, the capital is being depleted to provide 
current income greater than interest, which process may continue 
until the capital is exhausted. All investments must, at any one 
time, belong to one or the other of these three types. 
RELATION OF UNANTICIPATED TAXES TO THE THREE TYPES OF 
INCOME 
The value of capital is theoretically the present worth of all its 
expected future net income. ‘This is the value intended to be found 
by the assessor. Given such a value, the subsequent imposition of 
an unanticipated tax of any amount, either on income or on property 
value, would diminish the expected future net income, and thus also 
diminish the value of the capital. This is true for each of the three 
types of income described above—the annual sustained yield, the 
deferred yield, and the depletion yield. 
The three types may be illustrated by the following example of 
three brothers, each of whom has just received a legacy of $13,333. 
This example is suggested by Fisher (8, pp. 247-254), where, how- 
ever, the illustration is used for another purpose than the one which 
is involved here. Assume an interest rate of 3 percent. ‘The first 
brother invests his fortune in a perpetual annuity of $400 a year. 
The second puts his capital in trust to accumulate at 3 percent in- 
terest for 17% years, at which time, having increased to $22,478, it is 
