C ONSUMPTION and investment are two of the most familiar and important concepts in contemporary economics. Like all concepts with a long and respectable development in the history of economic thought, their meaning is largely taken for granted. But familiarity is no excuse for failing to recognize the differences between their three most important uses: in the definition and classification of final output; in the explanation of the level of effective demand; and in the analysis of the process of economic growth. The concept of final output presupposes a linear view of the productive process that leads easily to an institutional explanation of the flows of income and expenditure. Consumption and investment are the two simplest headings under which expenditure on final output-as it flows out of a linear productive process can be classified: they define the flow of final output and show how it is purchased. Even the nature of the goods that make up final output can be ignored in the determination of effective demand, for only the origins of the expenditure-the spenders-are ultimately important. The same concepts of consumption and investment, and the same view of the productive process, however, prove to be seriously defective tools in the analysis of the process of economic growth. They mislead by focusing attention on flows rather than stocks, on the circular flow of money incomes and