Back to Homepage Income Measures Income: Saving and Investment Methods of Buying That Save Money The Choice of Goods Methods of Buying That Reduce Mistakes In Selection Methods of Securing Information Concerning Goods Plans and Motives of Consumers Consuming the Product Who Is the Consumer? The Consumer in the Market Priorities and Preferences in Consuming Decisions The Consumer as User of Wealth The Consumer as a Buyer Consumers as Self-Conscious Agents Criteria of a Good Market Information Versus Persuasion of the Buyer The Rate of Interest Interest Rates and Economic Activity Saving, Investment, and Income Saving Motives Saving Plans and their Realization Total Spending Is the Key to Prosperity The More We Spend, The More We Have Spending by Private Enterprise

Income Measures LET US EXAMINE SOME OF THE factual data on income. Largely the available statistical information is in a form that coincides with the concept of income outlined in the previous chapter. We shall want to take note of the discrepancies between the various income measures available and to understand their uses and the information they convey. We shall also consider certain of the pitfalls in the way of interpreting a time series of income statistics. The Gross National Product The concept of the national income and output as consisting of goods and services currently produced and sold--or destined for sale, as are the increments to inventories--is termed, in the income measures of the Department of Commerce, the gross national product (written GNP). When looked at as the earnings on this output, it is described as the gross national income GNI. Only outputs and earnings that enter the exchange process are included in this compilation, the main exceptions consisting of an estimated rental value of owner-occupied dwelling units, home-grown produce, and income payments in kind to domestic servants, members of the armed forces, and so on. As argued earlier, there would be literally no stopping place, and measurement would be futile, if all income in kind were sought to be measured. Within its limitations, the GNP measures rather effectively, allowing for statistical errors, the market value of goods and services produced over the year. National Income Another common measure of economic activity is that of the national income NI. In brief, it comprises an endeavor to measure the net output or the annual earnings of the factors of production. Earlier, it was declared that gross income Y consisted of the earnings of productive factors received for their productive services plus depreciation and indirect taxes. Deducting the latter totals from gross income yields national income. Movements in this series, as would be expected, closely parallel those in gross product. Proprietors and rental income includes income of unincorporated businesses, as farmers, shopkeepers, and professionals, plus house, business property, and understood. Corporate profits are those before the deduction of state and federal income taxes; as wages and the like are included before taxes, the profit totals must be estimated in the same way. Income taxes represent a claim upon the disposal of income only after the latter is once earned. The inventory valuation adjustment referred to in the table represents an endeavor to eliminate from the profit total all earnings (and losses) due to the influence of fluctuating prices on inventories. The item "net interest" excludes interest on the national debt which, in itself, is as large again as the interest figure included. Interest on the national debt is regarded as a form of transfer, rather than an income, payment. When we examine the percentage of the national income distributed among the different categories, we see that the degree of stability of the percentage of compensation of employees, in recent years, is fairly striking. Its magnitude seems to hover about 65% of the total; this has been observed by many investigators as an interesting and important empirical fact, although the explanation of its constancy is still obscure. When we also consider that a good portion, maybe most, of the proprietors and rental income category consists of labor income, rather than of property income (since farmers, small business men, and landlords perform much of the supervisory work and repair services to their property themselves, though terming their earnings profits and rents rather than wages), we are probably not too far from the facts if we conclude that labor income of all sorts approaches about 80% of the total. Personal Income To measure the flow of earnings that come into the hands of individuals--earnings which the recipients regard as income even though they represent a transfer payment (for instance, subsistence allowances to veterans, old-age pensions, and unemployment insurance)--a series of figures on personal income has been devised. Besides the allowances noted, it recognizes that part of the compensation of employees is paid directly to pension funds, and also that only a part of corporate profits are distributed, the remainder being allotted as taxes or withheld. The concept of disposable personal income refers to personal income after the payment, largely, of personal income taxes. This figure is perhaps the best estimate of sums of purchasing power flowing to individuals for purposes of purchases and savings over a specified period of time. Income Accounts There is also another way of presenting the information on national income which is of especial interest to those who like to think of the economic mechanism as a large integrated business unit, and are concerned with drawing up accounts for it in the same way as is done for a business firm. As this approach conveys some new insight into the process, and as it is an alternative method for tabulating the income data, it merits some attention. The fundamental economic units in our economy that make and execute decisions for purchase and sales, that is, economic decisions, are consumers (or households), business firms, and government. When we take account of relations with the rest of the world, there is also the international account.   Home