Re: Income = Output?

[Harry Veeder <eo200@xxxxxxxxxxxxxxxxxxx>]

Gunnar,


> Harry Veeder:
> 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.
>
>

Gunnar Tómasson:
> The Income = Output axiom is rooted in analytical considerations which
> Schumpeter summarized as follows;
>
> "...net profit cannot exist, because the value and price of the original
> productive services will always absorb the value and price of the product,
> even if the productive process is parcelled out among ever so many
> independent firms."  (_The Theory of Economic Development_, Oxford
> University Press, 1961, p. 31)
>
> I cannot conceive of anyone thinking the matter through and concluding
> otherwise.

It can be similarly argued that net loss cannot exist, but the impossibility
of net profit and net loss does not change the fact that individual firms
experience profits and losses. Wouldn't these profits and losses only arise
if income did not equal output?


> "If in classical times [this conclusion] was not expressly stated,"
> Schumpeter continued, "it is first because the older economists were not
> very rigorous in recognising the consequences of their own principles, and
> secondly because our conclusion appears to blatantly to contradict the
> facts.  Böhm-Bawerk was indeed the first who expressly said that the whole
> value of the product must in principle be divided between labor and land, if
> the process of production is to proceed with ideal perfection."  (Op. cit.,
> p. 31)
>
> The realm of analytical economics - Mill's "abstract science" - is one of
> such "ideal perfection".
>
> Gunnar


What exists as an abstract ideal does not necessarily have to be perfect.
For example, the platonic solids are ideal forms, but whether or not they
are perfect forms is a question of aesthetics.

Similarly, the equations below represent an ideal production process, and
although they may not represent the perfect production process, they just
might represent the actual production process.

Harry



>
> ----- Original Message -----
> From: "Harry Veeder" <eo200@xxxxxxxxxxxxxxxxxxx>
> To: "Gunnar Tómasson" <gunnar.tomasson@xxxxxxxxxxx>; "post keynesian
> thought" <pkt@xxxxxxxxxxxxxxxx>
> Sent: Wednesday, October 01, 2003 8:41 AM
> Subject: Re: Income = Output?

>
> 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