THE MEASUREMENT OF REAL INCOME

Dan Usher

Review of Income and Wealth, 1976, vol. 22, issue 4, 305-329

Abstract: This paper is about the theory of the measurement of real income. By “theory of measurement” I mean the characterization of statistical terms as variables in a model, just as real consumption is characterized as an indicator of utility and the consumer price index is characterized as the cost of attaining a given level of utility in the economic theory of index numbers developed by Konus, Frisch and others half a century ago. I identify five logically distinct and internally‐consistent concepts of real income: maximum sustainable consumption, consumption plus the output of new capital goods, consumption plus the increase in the capital stock where capital can be measured in two quite separate ways, and the sum of actual consumption and consumption forgone in the investment process. The last of these concepts is the most appropriate as a guide to producing long time series of real income for measuring a country's rate of economic growth.

Date: 1976
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