fisher definition of national income is based upon
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The definitions of national income can be grouped into two classes:
1. The traditional definitions advanced by Marshall, Pigou and Fisher.
2. Modern definition given by Prof. Simon Kuznet.
The Marshallian Definition:
According to Marshall—”The labour and capital of a country acting on its natural resources produce annually a certain net aggregate of commodities, material and immaterial including services of all kinds. This is the true net annual income or revenue of the country or national dividend.” In this definition, the word “net” refers to deductions from the gross national income in respect of depreciation of capital equipment used in the creation of productive activity. And to this must be added income from abroad.
Other features of this definition are:
(i) It is measured on one year basis,
(ii) It includes the values of goods and services,
(iii) It includes only those things which are produced by labour and capital of a country with the help of the natural resources,
ADVERTISEMENTS:
(iv) It excludes the depreciation and debasement of capital goods,
(v) It includes the net foreign investment in the country,
(vi) It excludes all those goods and services which are produced by friends, relatives or organisations free of costs.
No doubt Prof. Marshall’s definition is theoretically sound, simple and comprehensive but it has got some serious practical limitations:
(i) It is not easy to ascertain or make
statistically correct estimate of the total production of goods and services in an economy,
(ii) The problem of double counting has been ignored,
(iii) How to make allowance for the portion of the produce kept for self-consumption,
(iv) The problem of current and base year prices is also ignored.
The Pigovian Definition:
Marshall’s follower, A. C. Pigou has in his definition of national income included that income which can be measured in terms of money. In the words of Pigou—”National income or National Dividend is that part of objective income of the community including of course income derived from abroad which can be measured in money.”
This definition is better than the Marshallian definition. It has proved to be more practical also. The above definition of Prof. Pigou is classificatory; it takes into account of those goods and services which can be measured by the measuring rod of money.
All those goods which are given as gifts, bounties etc. are not included in the national income, Prof. Pigou’s definition is used in exchange economy where goods and services are exchanged for money only, The definition takes into account the net value of goods and services which are exported and imported.
Criticism:
Although the definition of Prof. Pigou is precise, simple and practical but it is not free from criticisms.
The important criticisms advanced by economists are:
(i) National income estimate account for only those goods and services which are exchanged for money. It is not appropriate for an underdeveloped country where there is barter system is prevalent.
(ii) The measuring rod of money is also defective. This makes the calculation of national income very faulty. Pigou himself has said that the services rendered by women enter into the national dividend when they are rendered in exchange of money whether in the factory or home, but do not enter into it when they are rendered by the members and wives gratuitously to their own families.
(iii) Thus, if a man pays to his maid servant for her service, the money payment will be included in the national income. But if that man marries the maid-servant then her service will not be included in the national dividend. Though the services rendered are the same or rather better. Thus, these services are included in one case and are excluded in the other.
Fisher’s Definition:
Fisher picked up in his study ‘Consumption’ as the criterion of national income whereas Marshall and Pigou regarded it to be ‘production’. According to Fisher—”The national dividend or income consists solely of services as received by ultimate consumers, whether from their material or from the human environments. Thus, a piano, or an overcoat made for me this year is not a part of this year’s income, but an addition to the capital, only the services rendered to me during this year by these things are income.”
1. The traditional definitions advanced by Marshall, Pigou and Fisher.
2. Modern definition given by Prof. Simon Kuznet.
The Marshallian Definition:
According to Marshall—”The labour and capital of a country acting on its natural resources produce annually a certain net aggregate of commodities, material and immaterial including services of all kinds. This is the true net annual income or revenue of the country or national dividend.” In this definition, the word “net” refers to deductions from the gross national income in respect of depreciation of capital equipment used in the creation of productive activity. And to this must be added income from abroad.
Other features of this definition are:
(i) It is measured on one year basis,
(ii) It includes the values of goods and services,
(iii) It includes only those things which are produced by labour and capital of a country with the help of the natural resources,
ADVERTISEMENTS:
(iv) It excludes the depreciation and debasement of capital goods,
(v) It includes the net foreign investment in the country,
(vi) It excludes all those goods and services which are produced by friends, relatives or organisations free of costs.
No doubt Prof. Marshall’s definition is theoretically sound, simple and comprehensive but it has got some serious practical limitations:
(i) It is not easy to ascertain or make
statistically correct estimate of the total production of goods and services in an economy,
(ii) The problem of double counting has been ignored,
(iii) How to make allowance for the portion of the produce kept for self-consumption,
(iv) The problem of current and base year prices is also ignored.
The Pigovian Definition:
Marshall’s follower, A. C. Pigou has in his definition of national income included that income which can be measured in terms of money. In the words of Pigou—”National income or National Dividend is that part of objective income of the community including of course income derived from abroad which can be measured in money.”
This definition is better than the Marshallian definition. It has proved to be more practical also. The above definition of Prof. Pigou is classificatory; it takes into account of those goods and services which can be measured by the measuring rod of money.
All those goods which are given as gifts, bounties etc. are not included in the national income, Prof. Pigou’s definition is used in exchange economy where goods and services are exchanged for money only, The definition takes into account the net value of goods and services which are exported and imported.
Criticism:
Although the definition of Prof. Pigou is precise, simple and practical but it is not free from criticisms.
The important criticisms advanced by economists are:
(i) National income estimate account for only those goods and services which are exchanged for money. It is not appropriate for an underdeveloped country where there is barter system is prevalent.
(ii) The measuring rod of money is also defective. This makes the calculation of national income very faulty. Pigou himself has said that the services rendered by women enter into the national dividend when they are rendered in exchange of money whether in the factory or home, but do not enter into it when they are rendered by the members and wives gratuitously to their own families.
(iii) Thus, if a man pays to his maid servant for her service, the money payment will be included in the national income. But if that man marries the maid-servant then her service will not be included in the national dividend. Though the services rendered are the same or rather better. Thus, these services are included in one case and are excluded in the other.
Fisher’s Definition:
Fisher picked up in his study ‘Consumption’ as the criterion of national income whereas Marshall and Pigou regarded it to be ‘production’. According to Fisher—”The national dividend or income consists solely of services as received by ultimate consumers, whether from their material or from the human environments. Thus, a piano, or an overcoat made for me this year is not a part of this year’s income, but an addition to the capital, only the services rendered to me during this year by these things are income.”
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