Measurement of growth

I read my friend Ajith Zacharias’ article on SSRN on Hicksian measures of income today, for the third time, and I was not altogether satisfied. His conclusion is purely negative. Hicks’ definition will not work.

Hicks’ definition is the SNA definition of income: roughly what one can consume over a period without depleting ones period initial net worth. The maximum one can consume. Without diminishing wealth. I.e the wealth at the end of the period is equal to the wealth at the beginning. This definition is tenable only over suitably short periods of personal lifetime, typically when the individual is in the labour force (18 to 60, 65). The bursts of growth at the beginning of life, and the years of doddering senility, are in the interests of decency, passed over.

J. L Hanson, A Textbook of Economics; I quote

To the economist wealth is a stock of goods existing at a particular time that conform to certain requirements. Such goods must possess four qualities. In the first place, they must possess utility-that is, they must be capable of yielding satisfaction, and so they must be desirable. Secondly, before goods can be considered wealth they must have a money value, even though they may be considered to be invaluable.[…]Thirdly, they must be limited in supply. Fourthly, the ownership of such goods must be capable of being transferred from one person to another. This fourth condition carries with it the assumption that all wealth is owned by someone-an individual or a public body. This definition of wealth is more precise than the meaning often attached to the word in ordinary speech, and would exclude intangible things such as acquired skills. An independent craftsman-as, for example, a carpenter, could count his tools as part of his stock of wealth but not his skill in using them, since skills are not transferable. In speaking of a country’s wealth, however, some people might include the quality of its labour, especially if there was a high standard of education and training. For clarity of thinking it is essential to attach precise meanings to terms, and it is therefore better to regard only tangible things as wealth.

Zacharias mentions human capital in his paper, but from the foregoing we can see that there is no such thing.  Positing some such idea is ideological and unscientific.  Every human being is capable of what he is capable off.  And training can be imparted to anyone.  What a man can consume is what he can seize for himself in this battle of each against all.  Human capital is about enjoying the spoils of war, not something that you  can alienate from yourself.  That is the problem I have with the negative conclusion in the paper.  Wealth is very definite.  The accretion is also a definite quantity of goods.  Behind services of all manner, lie bundles of goods-advanced and productively consumed.  The accretion to the stock of goods is a definite datum.  My portion of world product (as is Ajith’s) is a definite datum.  So income is indeed welldefined by Hicks and SNA.


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