Income and wealth

The “wealth” a person carries inside – knowledge, skills, experience, health and good qualities – is called human capital. When a person saves part of his income and turns it into property such as a house, equipment, a bank deposit or securities, this is his material capital. Together the two make up a person's wealth. That is why the time and money spent on studying and learning a trade are an investment in human capital. By type of resource, income also differs: from labour – wages; from land and rented-out property – rent; from money put in a bank – deposit interest; from shares – dividend; from entrepreneurship – profit. People's abilities and work differ, so incomes are not equal; this sometimes motivates, but too big a gap is not good, so the state regulates incomes through taxes and benefits. When prices change, real income is calculated to compare incomes: Rr = Rn : I, where Rn is nominal income and I is the consumer price index (the degree of price change).