第15章 REAL INCOME: COST AND UTILITY(1)

§1.Approaching on its concrete side the economic system the human values of which we seek to ascertain, we find it to consist in a series of productive processes bringing various goods and services into marketable shape, accompanied by a series of consumptive processes in which these goods and services are used, wasted, or otherwise disposed of by those who buy them for personal uses.The former set of processes, as we have recognised, occupy a place of so much greater prominence and publicity as virtually to absorb the science of industry or 'economics', leaving to the processes of consumption an obscure and entirely subordinate position.

Our organic or human valuation starts with a protest against this assumption of inequality in the arts of production and consumption.Its interpretation of economic processes will be disposed to lay as much stress upon the history of the various commodities after they leave the shop-counter and pass into the possession of consumers as before.The human good and evil associated with economic 'wealth' must, viewed from the organic standpoint, depend as much upon the nature of its consumption as upon the nature of its production.

This consideration will determine our method of applying the human standard of values.Accepting at the outset the convenient distinction between the processes of production and consumption, we shall approach the economic system at the point where the two processes meet, that is to say where wealth emerges from the productive processes as income, in order to pass as such into the possession of persons entitled to consume it.

To make the enquiry simpler and more easily intelligible, we will ignore for the present all the extra-national or cosmopolitan conditions of modern industry, and assume that we are dealing with a closed national system producing, distributing, and consuming the two thousand million pounds'

worth of goods and services roughly estimated to constitute the current annual income of the British nation.

§2.Now the habit of regarding wealth and income in terms of money is so deep-seated and persistent as to make it difficult for ordinary 'business'

men to realise these words in any other than a monetary sense.The ordinary mind has to break through a certain barrier of thought and feeling in order even to present to itself the significance of 'real' wages or 'real' income, as distinguished from money wages and money income.This dominion of the monetary standard is illustrated by the almost instinctive thrill of elation that is felt when we are informed that the income of the nation has risen from about £1,200,000,000 in 1870 to £2,000,000,000 in 1912.1So accustomed are we to regard money as the measure of the desirable, that we feel that this rise of money income must imply a corresponding rise in national welfare.It requires some effort of mind to realise even the two obviously important factors of the increase of population and the shift of prices, which, when once realised, so evidently affect the bearing of the money income upon the national welfare.Year after year trade reports and other official documents, in comparing the relative economic position of the various nations or the fluctuations of trade within a single nation, habitually encourage this misleading influence of the financial standard by publishing crude, uncorrected monetary values as if they were indicative of industrial facts, and statesmen take such figures as valid evidence on which to base a policy.

As regards the particular object of our enquiry, this obsession of the general ind by the monetary standard makes it impossible for us even to assume that all our leaders attach a clear and consistent meaning to the term 'real' income.It is not quite easy at first to grasp the central and essential fact that every receipt of any sort of income, whether as wages, rent, salary, interest, profit, fees or otherwise, involves the coming into being of a bit of 'real' income in the shape of some material goods or some saleable service.2 This fact once grasped, however, it becomes evident that the £2,000,000,000, said to be the nation's income, is merely the monetary representative of goods and services which are the net product of the economic activity of the year, the quantity of wealth produced over and above that which has gone to maintain the existing material fabric of industry.The aggregate amount of 'wealth produced' is, of course, considerably greater, for a large quantity of the productive power must continually be employed in repairing the wear and tear sustained by the material instruments of production, the land, buildings, machinery and tools and other forms of 'fixed' capital, and in replacing the raw materials and other forms of 'circulating' capital which have passed out of the productive processes into consumable goods.The net 'real' income consists of the goods and services produced over and above this provision for the maintenance of the material structure of the system.