Value & Capital, CHAPTER XIV, Section 6

This section reaches an important and somewhat surprising conclusion about the definition of income.  Recalling that the "central criterion" is "that a person's income is what he can consume during the week and still expect to be as well off at the end of the week as he was at the beginning," the author notes that the various approximations to this criterion indicate "how unattractive it looks when subjected to detailed analysis."  Indeed, he goes on to explain why the approximations raise doubt as to whether the central criterion "does, in the last resort, stand up to analysis at all."

His explanation compares two "prospects" of an individual possessing a certain stock of consumption goods at the beginning of a week and expecting "a stream of receipts that will enable him to acquire in the future other consumption goods, perishable or durable."  The two prospects, which he calls Prospect I and Prospect II, are related in that Prospect II is the new prospect that emerges, one week after having started with Prospect I.  Prospect II "will have a new first week which is the old second week, a new second week which is the old third week, and so on."  The author argues that if both prospects were available at the beginning of the same week, the individual would know which one he preferred.  "But to inquire whether I on the first Monday is preferred to II on the second Monday is a nonsense question; the choice between them could never be actual at all."

He then concludes the section with the following summation of the key insight of this chapter:

This point ... has the same sort of significance as the point we made at a much earlier stage of our investigations, about the immeasurability of utility.  In order to get clear-cut results in economic theory, we must work with concepts which are directly dependent on the individual's scale of preferences, not on any vaguer properties of his psychology.  By eschewing utility we were able to sharpen the edge of our conclusions in economic statics;  for the same reason, we shall be well advised to eschew income and saving in economic dynamics.  They are bad tools, which break in our hands.