This section begins to discuss the meaning of the term income, in the context of dynamic economics. In the stationary state of the dynamic model, as well as in the static case, the meaning is much easier to specify. For a person who expects to receive “the same amount in every future week as he receives this week, it is reasonable to say that that amount is his income.”
In the more general dynamic case, complications arise. The author uses the example of a person being paid more in the current week than in some other weeks (if, for example, “this week’s receipts may include wages for several weeks’ work”); in such a case “we should not regard the whole of his current receipts as income.” Similarly, for someone paid once every four weeks, if “the present week was one in which his salary was not paid, we should not regard his income this week as being zero.”
If not zero, then what should the income be in this example? In proceeding to try to answer this question, the author notes that
The purpose of income calculations in practical affairs is to give people an indication of the amount which they can consume without impoverishing themselves. Following out this idea, it would seem that we ought to define a man’s income as the maximum value which he can consume during a week and still expect to be as well off at the end of the week as he was at the beginning.
He concludes that this definition of income “is what the central meaning must be,” because “the practical purpose of income is to serve as a guide to prudent conduct.”
He closes the section by noting that “business men and economists alike are usually content to employ one or other of a series of approximations to the central meaning.” The next several sections of the book will look at examples of such approximations.
