EVALUATION OF REAL NATIONAL INCOME

1. Improved measurement of national income has been one of the outstanding features of recent progress in economics. But the theoretical interpretation of such aggregate data has been sadly neglected, so that we hardly know how to define real income even in simple cases where statistical data are perfect and where problems of capital formation and government expenditure do not arise. In 1940 J. R. Hicks made an important advance over the earlier work of Professor Pigou. This has given rise to recent discussions between Kuznets, Hicks, and Little, but the last word on the subject will not be uttered for a long time. I have tried to treat the problem somewhat exhaustively in this paper, relating it to the modern theories of welfare economics of Pareto-Lerner-Bergson type. The result is not easy reading even to the author-but without such a careful survey I doubt that even the classical writings of Pigou can be adequately gauged.' 2. In Fig. 1, the point A represents observed consumption data for a single consumer in equilibrium at the indicated price-slope line through A. All the other points are each to be regarded as alternative to A and have nothing to do with each other. The following statements are immediate consequences of the modern theory of a single consumer's behaviour and are based on E pq data such as the national income statistician might be able to measure: (a) We can immediately infer that B is on a lower indifference curve than A. D