Value & Capital, CHAPTER XIV, Section 7

This section begins with an issue that emerges when considering social income, i.e. the aggregate of individual incomes.  As seen earlier, the concept of individual income depends on the expectations of the particular individual.  Furthermore, as explained in the discussion of equilibrium and disequilibrium, the expectations of different individuals may not be consistent.  As the author notes, "one of the main causes of disequilibrium in the economic system is a lack of consistency in expectations and plans."  So it is obviously problematic to be considering an aggregate based on these possibly inconsistent expectations.  But if this is not what social income is, the author asks, what is it?

He answers this question by noting that the various "definitions of income that we have hitherto discussed are ex ante definitions -- they are concerned with what a person can consume during a week and still expect to be as well off as he was.  Nothing is said about the realization of this expectation."  If the value of the individual's prospect at the end of the week is greater than expected, he is said to have experienced a "windfall" profit for that week (conversely, if less, then a windfall loss).  If the value of the windfall profit is added to the income ex ante (or the windfall loss is subtracted from it), the result is defined as the income ex post.  As the author notes, if this is applied to the concept he earlier termed Income No. 1, then "it equals Consumption plus Capital Accumulation."

The author goes on to note that this particular income concept "has one supremely important property" -- namely that "it is almost completely objective."  As long as the capital accumulation deals with income from property and not with changes in "human capital" then income ex post can be measured objectively.  The author notes that "this is a very convenient property" but argues that it does not justify extensive use of the income ex post concept in economic theory.

The income ex post of any particular week cannot be calculated until the end of the week, and then it involves a comparison between present values and values which belong wholly to the past.  On the general principle of 'bygones are bygones', it can have no relevance to present decisions.