Value & Capital, CHAPTER XIV, Section 8

This section begins by noting a dilemma that confronts anyone wanting to calculate social income:  "The income he can calculate is not the true income he seeks;  the income he seeks cannot be calculated."  The text explains that the only real way out of this dilemma is to start with the objective quantity, Social Income ex post, and to adjust it "for those changes in capital values which look as if they have had the character of windfalls."  The author argues that such an estimation procedure is perfectly reasonable, but he emphasizes that the result is only a statistical estimate, not a true measurement of an economic quantity.

In discussing the problem of estimating income, the author proposes one method, which is

to take the actual capital goods existing at the end of the period, and to value them at the prices which any similar goods would have had at the beginning;  any accumulation of capital which survives this test will be an accumulation in real terms.  By adding the amount of consumption during the period, we get at least one sense of income ex post;  by then correcting for windfalls we get a useful measure of real social income.

In closing this section, the author expresses the hope that this chapter has made clear the important influence of income calculations on economic conduct, both at the individual level and the social level.  At the same time, he expresses the hope that the chapter has made clear that "income is a very dangerous term, and it can be avoided."  Finally, he previews future discussions by noting that "a whole general theory of economic dynamics can be worked out" without using income.  Even when a need arises "at a very late stage in our investigations," an exact definition will not prove necessary;  "something quite rough" will be sufficient.