Re: Income = Output?

[Harry Veeder <eo200@xxxxxxxxxxxxxxxxxxx>]

>
> Harry Veeder:
>
>> I accept the pre-classical doctrine, but translating the doctrine into
>> mathematics is a delicate matter. If one embraces the doctrine, then the
>> assumption that income is equivalent to output logically implies labour is
>> exclusively motivated by output.
>

Gunnar Tómasson:
> Comment:
>
> Indeed - and Say's Law of Markets is a logical corollary thereof.
>
> How, then, could Keynes "sympathise" with its analytical premises while
> rejecting the empirical validity of Say's Law?
>
> The answer is indicated by the following remarks by John Stuart Mill:
>
> "In the definition which we have attempted to frame of the science of
> Political Economy, we have characterized it as essentially an abstract
> science, and its method as the method a priori.  Such is undoubtedly its
> character as it has been understood and taught by all its most distinguished
> teachers.  It reasons, and, as we contend, must necessarily reason, from
> assumptions, not from facts.  It is built upon hypotheses, strictly analogous
> to those which, under the name of definitions, are the foundation of the other
> abstract sciences.  Geometry presupposes an arbitrary definition of a line,
> "that which has length but not breadth."  Just in the same manner does
> Political Economy presuppose an arbitrary definition of man, as a being who
> invariably does that by which he may obtain the greatest amount of
> necessaries, conveniences, and luxuries, with the smallest quantity of labour
> and physical self-denial with which they can be obtained in the existing state
> of knowledge.  [...]  Political Economy, therefore, reasons from assumed
> premises - from premises which might be totally without foundation in fact,
> and which are not pretended to be universally in accordance with it.  The
> conclusions of Political Economy, consequently, like those of geometry, are
> only true, as the common phrase is, in the abstract; that is, they are only
> true under certain suppositions, in which none but general causes - causes
> common to the whole class of cases under consideration - are taken into
> account.
>
> "This ought not to be denied by the political economist.  If he deny it, then,
> and then only, he places himself in the wrong.  The a priori method which is
> laid to his charge, as if his employment of it proved his whole science to be
> worthless, is, as we shall presently show, the only method by which truth can
> possibly be attained in any department of the social science.  All that is
> requisite is, that he be on his guard not to ascribe to conclusions which are
> grounded upon an hypothesis a different kind of certainty from that which
> really belongs to them.  They would be true without qualification, only in a
> case which is purely imaginary.  In proportion as the actual facts recede from
> the hypothesis, he must allow a corresponding deviation from the strict letter
> of his conclusion; otherwise it will be true only of things such as he has
> arbitrarily supposed, not of such things as really exist.  That which is true
> in the abstract, is always true in the concrete with proper allowances.  When
> a certain cause really exists, and if left to itself would infallibly produce
> a certain effect, that same effect, modified by all the other concurrent
> causes, will correctly correspond to the result really produced.
>
> "The conclusions of geometry are not strictly true of such lines, angles, and
> figures, as human hands can construct.  But no one, therefore, contends that
> the conclusions of geometry are of no utility, or that it would be better to
> shut up Euclid's Elements, and content ourselves with "practice" and
> "experience."" ('On The Definition of Political Economy; And on the Method of
> Investigation Proper to it', in Essays On Some Unsettled Questions Of
> Political Economy, Third Edition, Longmans, Green, And Co., London, 1877, pp.
> 143-145)
>
> As noted on several earlier occasions, Mill's comments on the analytical and
> empirical aspects of 'Political Economy' were mirrored in Keynes' definition
> of 'The Theory of Economics'  (1922) as "an apparatus of the mind, a technique
> of thinking" which, while not directly applicable to real-world economic
> phenomena, yet "helps its possessor to arrive at correct conclusions" with
> respect thereto.
>
> For PKTers, who do not understand or choose to dismiss the Mill-Keynes
> viewpoint, there is now this to consider:
>
> A coherent concept of Income - one that identifies it with Output - is
> possible only in the context of analytical economics.
>

Mill is speaking in generalities, at least I see nothing to suggest
that the axiom of equality (i.e. income = output) is indispensable for an
analytical economics.

However, an analytical economics may just as well begin with an axiom of
inequality. (i.e. income =/= output). However that requires that saving and
investment be treated as independent activities. I am well aware that this
possibility is difficult to discuss given that current analytical economics
is based on the axiom of equality.

Another way to proceed is as follows:

1) Output = Investment + Consumption

2) Saving = Income - Consumption
   or Consumption = Income - Saving

Consumption is crucial because it links the two equations together:

3) Output = Investment + Income - Saving


A political economics seeks to balance saving with investment
so that Output = Income.

Harry