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rrHE economic condition of the world is fast becoming
desperate, and stresses and tensions of such magni-
tude are being set up between nations from this cause
that our lives, our industries, our arts and our religions are
threatened. Before all else, then, it behoves the plain man to
ask himself what is the cause of the distress, and to demand
of those whose business it is to tell him, what is the remedy.
The proper study of mankind is, for the time being, eco-
nomics, the system of production and distribution under
which men live and, very often, suffer, the way it works,
what it does give, and what it could give if it were altered.
If, however, the plain man turns to the economists for en-
lightenment, he is forced to turn away again in despair. They
have no explanations to offer. Indeed, there is no agreement
among them about what is and what is not, and their differ-
ences are so acute and involved that the ordinarily intelligent
onlooker can only wonder whether the discussion is about
real things, in concepts that fit the facts, or whether the
whole performance is merely a play of puppets which cease
to have movement and meaning when the manipulator
ceases to pull the strings. Does the discussion make for
common sense, or is it a game of jargon? The spectator may
not be able to answer this question; but he is at least entitled
to try, since his experience of the productive system is just as
direct and immediate as the economist's experience; and he
can at least test the theories of the economists with what he
knows of the contents of the account books and ledgers of
the world, where the raw materials of economic studies are
to be found.
The activities of the system can be classified under four
(1) The production of consumers' goods.
(2) The production of producers' goods.
(3) The production of capital goods.
(4) The rendering of services.
A brief definition of these terms is all that is necessary.
Roughly, consumers' goods are the goods sold in retail shops
and stores for personal consumption; producers' goods are
the plant, machinery and equipment for the production of
consumers' goods; capital goods are buildings, etc., and
plant, machinery and equipment for the production of goods
other than consumers' goods; and services are rendered by
local and central governments, landlords who let houses and
buildings for rent, banks, insurance companies, transport
undertakings, telegraph, telephone and postal authorities,.
advertising agents, gas, electricity and water works, doctors,
surgeons, lawyers, priests, laundries, etc. The word 'pro-
duction' means the whole process from the winning and
growing of the raw materials to the sale of the finished goods.
One simple case will, at first, be considered: the case of an
economic system at equilibrium. By 'equilibrium' is meant
that the rate of supply and the rate of sale of consumers'
goods are equal. To render this case still simpler, it will be
assumed, at first, that investment in producers' goods (or
the bringing into use of idle producers' goods) is just suffi
cient to maintain the productive capacity of the consumers'
goods at level, .and that .prices and rates
of wages, salanes, d1v1dends and savuig rema1n unchanged.
The first thing to examine is the retail price of any volume
of consumers' goods.
There is no need for elaborate and
recondite theories about price, such as economists love. Price
can be simply defined as the sum of the costs incurred, C,
and the profits added, P, during the production of the goods,
or E(C +P). The costs are all positive; the profits may be
positive, negative or zero. Now, how much of these costs and
profits is, sooner or later, spent on the purchase of con-
sumers' goods? The consumers' income from industry, part
of which he spends on consumers' goods, comes from salaries,
wages and dividends. By salaries and wages are meant all
payments for personal services; by dividends, .all
from profits, made as a return on money capttal mvested.
The price can then be analysed as follows. Let:
+ c
= salaries and wages paid, including-appropri-
ately-payments of social and unemploy-
ment insurance benefits, allowances, etc.;
= the part of salaries and wages paid for services,
including rates and taxes and social insurance
and unemployment insurance contributions;
=payments made by the employer for goods and
services, including rates and taxes and social
insurance and unemployment insurance con-
=losses due to depreciation, wastage, obsolescence,
bad debts, etc.;
+ f2 = dividends paid;
= the part of dividends paid for services, including
rates and taxes;
=net profits kept in the business, including money
raised as rates and taxes and social insurance
A first approach to this argument was published in The Criterion,
January 1935. But the argument, as stated there, was incomplete, and
the conclusions reached only partially true.
and unemployment insurance contributions,
etc., and not spent directly or indirectly on
goods or services. Under this heading must
be put all moneys placed to reserve for what"
ever purpose (staff, premises, pensions,
ing funds, etc.).
1: ( C + P) - P n = Cn + C21 + Cal + C41'
The retailers' profit, Pm is deducted and set aside for special
consideration. It is an important quantity, and since it is
added at the end of a process, it obviously does not come
from payments made during the process and included in the
price. But c
and c
are payments made for goods and
services, their price, and this price can be analysed:
C21 +c31 = C12 +c22 +ca2 +c42 +P12 +b2 +Pa2
Again, c
, c
and p
are payments for goods and services,
so that:
C22 +ca2 +P22 = C1a +c2a +ea a+ C43 +Pta +P2a +Paa,
and so on. Ultimately, the final price of any volume of con-
sumers' goods resolves itself into (r) (c
), which cam1
be called the cumulated residual income, R
, available for
the purchase of consumers' goods, and (2) (c
which can be called the deficiency, D
The payments mad@
for goods and services, c
, c
and p
, have been eliminated.
E(C +P) =R

This analysis can perhaps be more easily understood frorrr
the following diagram (which is not drawn to any scale).
long rectangle at the top represents the retail price of any
volume of consumers' goods; the shaded parts, the payments
for goods and services made by retailers and entrepreneurS!
and the payments for services made out of salaries,
and dividends. The sum of the white areas on the left
sents the cumulated residual income from payments
salaries, wages and dividends, R
, and the sum of the white
areas on the right the cumulated deficiency, D
The sum of
these two sums is equal to the long rectangle at the top. The
diagra:;n sho:uld be regarded as having been taken to its
vanishmg pmn t.
Not all of the cumulated residual income, Rll however,
~ i V i l l be spent on consumers' goods: some part of it will be
saved. Savings, S, must be defined as the difference between
the amount of the current cumulated residual income saved
and the amount of money spent on consumers' goods-in-
cluding cumulated residual income, less savings, from the
money spent on services by consumers-from sources, in
both cases, other than current salaries, wages and dividends
(money capital, past savings, etc.). Further, it can be held
that the retailers have paid dividends out of the profits from
the goods sold in the preceding period, and that, out of the
cumulated residual income from these dividends, an amount,
x, is spent in the current period on consumers' goods. The
total sales of consumers' goods made possible by the pay-
ments of the consumers' goods industries (considered purely
as industries making goods for consumption, and not as
themselves consumers of producers' and capital goods) will,
therefore, be R
+x- S
, after allowing for savings. If all the
goods are to be sold, an amount equal to D
+ S
- x must be
spent on consumers' goods out of income from other sources.
The only other sources of income are the producers' and
capital goods industries. By similar analysis, the price of
volume of producers' and capital goods can be reduced to:
E(C' +P') =E(c'
It is not necessary to consider separately the profits of
final producers of the goods. Some part of R
equal to S
be saved, and the total amount spent on consumers'
out of the payments made by the producers' and capital!
goods industries will be R
If all the consumers'
are to be sold, R
- S
must be equal to D
+ S
- x, and th
amount that must be invested in producers' and capital!
goods, E ( C' + P'), must be equal to D
+ D
+ S
+ S
This sum represents: ( r) the whole of the costs due t
depreciation, wastage, obsolescence, etc., of the whole ecd,
nomic system, plus (2) the whole of the net profits of th1
whole economic system (with the exception of the retailers)
including the net profits of the banks and insurance corn.
panies, and money raised by local and central governmen
taxation, and not spent directly or indirectly on goods oi
services, plus (3) the whole of the retailers' profits, piu1
(4) the whole of the amount of the savings, as defined, frorr
all current wages, salaries and dividends, minus (5) the par,
spent on consumers' goods of the cumulated residual incom1
from the dividends paid by the retailers out of the profits o.
the preceding period.
The way in which the productive system works can btl
shown by a few tentative figures. Let it be supposed that
system is divided into two self-contained systems, each under
a single ownership, viz., a consumers' goods and services
system and a producers' and capital goods system, which
will be called, for short, the consumers' goods system am!
the producers' goods system. There is nothing artifici:JJ!
about this supposition. It is made in order to simplify th
accounting. Under real conditions, the results would be
much if not identically the same. The two systems are rum
by their owners for profit, i.e., they desire to make a
out of their property and to add to its value. A little con-
sideration will show that the price of any volume of goods
made by either system will be the salaries and wages paid
(including the salaries of the proprietors, or the money they
take out of the business for their own purposes), plus the
cost of depreciation, wastage, obsolescence, etc., plus net
profits. All salaries and wages, less savings, are spent in the
consumers' goods system on consumers' goods and services.
Whether the price of consumers' services is included in the
price of consumers' goods or not does not affect the final
results. (It will be noted that the rentier has disappeared from
these two systems; and it will be seen later that this disappear-
ance makes no difference at all.)
The consumers' goods system begins with equipment
valued at [2,000 and 3,ooo in cash; the producers' system
with equipment valued at r,ooo and r,ooo in cash. Both
svstems start from scratch, with no stock in hand. The con-
s ~ m e r s ' goods system produces goods and services at a price
of 2,300, made up of 2,ooo for salaries and wages (in-
cluding the salaries of the owners), 2oo for depreciation,
etc., and I oo net profit. In the same period, it orders pro-
ducers' and capital goods at a price of 4 so, made up of
'3 oo for salaries and wages, I oo for depreciation, etc., and
so net profit. No consumer saves any of his income.
The creditor side of the balance sheets of both systems at
the end of the period of production will be:
Consumers' goods
By cash
By equipment - 2,000
Less depreciation 200
Add new equipment
Producers' goods
The total net profits in the first period are r so, a book-
keeping result. Cash-r so-has been transferred froliil
the consumers' goods system to the producers' goods system
In the second period, the owners of the consumers'
system decide that prospects are good, and produce good\
valued at 3,4SO, made up of 3,000 for salaries and
300 for depreciation, etc., and r so net profits. At tlxe
same time, they spend 8 IS on producers' goods, made um
of 68o for salaries and wages, 90 for depreciation
4S net profits. From salaries and wages, 230 are saved
The creditor side of the balance sheets at the end of
period is:
Consumers' goods
Producers' goods
By cash 2,48 5 !,285
By equipment - 2,250
Less depreciation 300
Add new equipment
The total net profits are I9S Cash-r3s-has been
transferred to the producers' goods system from the con
sumers' goods system, which has also lost the 230 saved.
In the third period, the operative figures are as follows:
Price of goods made - 3,795
Salaries and wages in price 3,300
Depreciation, etc., in price 330
Profit in price I 65
Total savings 205
The owners of the consumers' goods system have decidec
that they have all the equipment they need; the owners ol
the producers' goods system therefore spend 240 in salariei
and wages on the improvement and extension of their owr
equipment, and they write off so for depreciation. Thf
creditor side of the balance sheets at the end of the period is:
Consumers' goods
Producers' goods
By cash - -
By stock in hand (at
By equipment.-. -
Less depreciatiOn
The total net profits are 95 Cash-240-has been trans-
ferred from the producers' goods system to consumers and
to the consumers' goods system, which has had a net gain of
35 in cash (240 less 205 saved).
In the fourth period, the owners of the consumers' goods
system decide to raise 1 ,ooo fresh capital, and to spend it
on producers' goods. The operative figures in this period
Price of goods made - 3,450
Salaries and wages in price 3,000
Depreciation, etc., in price 300
Profit in price 150
Total savings 285
The creditor side of the balance sheets at the end of the
period is a:s follows :
Bycash -
By stock in hand (at
By equipment -
Less depreciation -
Add new equipment -
Consumers' goods
Producers' goods
The total net profits are 205. The cash tills have been re-
plenished by the new capital- 1 ,ooo-raised, and the
amount of cash originally held by the two systems has bee11
increased, but only to the extent of 280, 720 having been
lost to savings.
The results of these operations for the two systems com-
bined can now be summarized as under:
Increment Expenditure
in capital Amount of Savings on Total
Period value at investment in consumption income
end of in period period in in periodl
period period
.[, .[, .[, .[, .[,
I 150
2,300 2,4-50
8I5 230 3,4-50 3,875
3 95
24-0 205
3,335 3,635
1,205 I,ooo 285
3,565 4-,055
This investigation of the working of an economic systehl
resembling, in all essentials, the real thing tends at least tr
prove that the assertion made by some economists that in,
crement in capital value, investment and savings are identical
is false; and this conclusion is in agreement with common
sense. Normally, increment in capital value is identical with
net profits, when no fresh money capital is raised, and witr
net profits plus fresh money capital, when fresh mone}
capital is raised. The first columns of figures in the tablt
show this, the increment in capital value of 1,205 in tht
fourth period being due to fresh money capital, I,ooo, anc
net profits, 205. The amount of investment, defined a1
expenditure on producers' and capital goods, may be any
thing or nothing: it is an arbitrary quantity. So, too, art
savings. How can there be any such relationship betweer
investment and savings as to make them exactly equal.
N et profits plus salaries and wages in the period.
Bow, too, can the inco;ne of consumers be equal to
the price of consumers goods produced, a doctrme taught
in the universities and proved by diagrams which have no
relation at all to reality? And how can total income be equal
to investment plus consumption, as Mr. Keynes believes?
Other conclusions may be drawn both from the analysis and
the tentative figures; but, first of all, a return must be made
to the actual economic system, and the assumptions under
which the analysis of its operations was conducted must be
dismissed. One of these assumptions, that investment in
producers' goods was only just sufficient to maintain the
productive capacity of the consumers' goods industries, is
worthy of further comment; for all other investment must
have been in capital goods, which do not add directly to the
productivity of the consumers' goods industries. Hence the
cry in some quarters for public works to be put in hand by
governments, local and central, as a means of alleviating un-
employment. Quand le batiment va, tout va. If the public
works are financed by taxation that takes up money which
might otherwise have been saved, or by public loan that takes
up money which might otherwise have lain idle, purchasing
power from this source flows into the consumers' market;
the difference between the price of consumers' goods and
tumulated residual income, less savings, is made up to some
and the whole economic system is to that extent
relieved. Under these circumstances, saving, which may be
personal virtue, becomes a social vice, and taxation, which
many say brings ruin to the economic system, on the con-
urary helps to save it. Saving is a social virtue only when the
!otal cumulated residual income is greater than the price of
consumers' goods in the market.
In the economic system as it is, goods reach their final
market by stages, and production in all these stages is pro-
<.eeding simultaneously. The current income of the com-
1munity comes from the wages and salaries paid in the simul-
taneous, but different, stages of production and from the
profits earned either in the current or the preceding period.
This income, it has been shown, flows into the consumers
goods market as residual income, less savings. If,
the economic system is to be maintained in equilibrium, th,
rate of sale of consumers' goods, measured in terms of
sidual income, less savings, from the consumers', producers
and capital goods industries, must be equal to the rate oi
supply of consumers' goods, measured in terms of price.
rate of investment in producers' and capital goods must
consequently, be equal to the rate at which costs due tl!
depreciation, etc., are incurred over the whole system, plm
the rate a:t which savings, as defined, are withdrawn over thr
whole system, plus the rate at which the total amount ol
dividends is increasing over the whole system, plus the rat!
at which net profits are added to capital equipment over
whole system. The following diagram makes this clear.
Flow of consumers' Flow of producers'
goods and capital goods
A B c D
Residual Savings Residual Savings
m come,
m come,
less deprecia- less deprecia-
savings tion, savings tion,
etc. etc.
+ +
net net
profits profits
+ +
m crease m crease
m In
dividends dividends
If the rate of sale of consumers' goods is to equal the rated
supply, C must equal Band C + D must equal B +D.
The implications of the conclusion reached in the ford
going paragraph are enormous. Some part of the investmeli
will be in non-productive- goods, e.g., bridges, armament!
and this form of investment brings back into the consumer!
market a portion of the money taken away as rates and taxes;
but the greater part will be in goods that must earn their
and something over. An increase in the value of the
world's equipment, 1
, at the beginning of a period, to
( (I +a) at the end of the period is, therefore, to be ex-
p0ected. Other things being equal and the conditions remain-
ng the same, the value of the world's equipment will be
( I +

at end of the next period, 1
( I + a)
at the end
Jf a th1rd penod, and so on; or, more generally, the amount
Jf investment in producers' and capital goods during any
Jeriod must be:
Tn = 7
rn( I +a)n-I,
where rn is the amount of investment in the period; rl is
:he amount of investment in the initial period; rn is an erratic
rariable, the value of which is dependent upon decisions
bout savings, prices, wages, salaries, net profits, deprecia-
:ion, etc. (under the conditions stated, it is practically certain
:hat, after the first period, rn will be greater than unity); and
1 is the number of the period.
In other words, the rate of investment, if the foregoing
lnalysis is correct, must be compound, with erratic adjust-
nents; and the nature of compound increments is to grow
mt of hand. The economic system is, therefore, and has
dways been, faced with the problem of maintaining a rate of
which, in the natural order of things, cannot be
in.aintained: the resources of the world would, in the long
;un, be exhausted. If the money for investment comes from
he cash reserves of the consumers' goods industries and
rom the services, those reserves are drained off into the pro-
iucers' and capital goods industries, and into the pockets of
ihrifty persons. To set against this drainage would be the
tash flowing to the consumers' goods industries from invest-
nent in producers' and capital goods by the producers' and
iapital goods industries themselves; and again some part of
lhis cash would be saved by the thrifty. A cash crisis would
rery soon develop, if the money saved were not restored to in-
dustry by investment, from outside, in producers' and capita
goods; and this restoration would not be enough: new mane'
must be found. From what source would this new money corne
The system's financial resources are its cash and the pyrarni
of credit built upon the cash. They are, therefore, limited
But the law of the system, the law of compound growth
demands unlimited resources, both financial and physical
Further, there comes a moment when, for the time
industry has all, or nearly all, the producers' and capita
goods it needs. Investment decreases; the residual incorne
less savings, of consumers dwindles to a point where it i
less than the price of the consumers' goods offered for sale
and the vicious spiral of a slump begins, in which a diminish
ing production
of consumers' goods chases a diminishin1
residual income.
What is Mr. Keynes's remedy-to take the latest remed1
proposed-for a situation of this kind, after his 'long struggll
for escape' from the errors of the economists? It appears tl
be this: in times of industrial crisis, the rate of in teres'
should be lowered to a point where entrepreneurs would h
induced by the cheapness of money to become active agai11
Even a friendly writer-in the International Labour Revieui
Geneva, October 1936-has described this conclusion
seeming 'at first sight to be a very small mouse to emergi
from the labour of mountains'. It is not only a small mous
but, if the world has reached a point where it is inclined ti
destroy equipment rather than make new, it is about as
ful as a mouse. The rate of interest could be reduced tt
zero, and entrepreneurs would not borrow money to invest li
superfluous spindles, shipbuilding yards, blast
railways, and the hundred and one other forms of equipmem
of which there may already be too much. Like other remedili
which have been suggested-the raising or lowering
wages, reducing or increasing the number of hours of
raising or lowering prices by inflation, deflation or
the abolition of the manipulation of the rate m
Diminishing in volume, or price, or both.
interest would merely transfer the problem unchanged to
another plane, whatever temporary advantages might accrue
during a period of adjustment.
The truth about the economic system, as the plain man
ees it, is that, in the long run, it is hopelessly inefficient, as
'l.ll mechanisms must be that cannot work without choking
:hemselves to a standstill; and the cause of its inefficiency
'S, quite simply, profit-seeking. To profit itself, no moral
)bjection can ?e take.n. B:ut, if the can be only b,Y
:ontinuously mcreasmg mvestment m producers and capl-
:al goods, which not be wanted, is a rational ob-
ection to profit: 1t wlll starve us. A pnvately-owned system
)f production and distribution must, however, be run for
)rofit: it can work in no other way. From this dilemma there
s only one escape: the ownership of the system must be
:ransferred from private to public hands. It is commonly
mderstood that public ownership means socialism or com-
nunism; but this is an error. Socialism or communism is a
)articular case of a general solution. It is a form of distribu-
ion of consumers' goods, under public ownership, in which,
heoretically, everyone receives an 'income according to his
1eeds', although the new Russian Constitution states that 'in
he U.S.S.R. is being realised the principle of socialism:
'from everyone according to his ability, to everyone accord-
ng to his labour"' (v SSSR osushchestvljaetsja printsip
otsializma: 'ot kazhdogo po ego sposobnostjam, kazhdomu-po
go trudu.' Article r 2 ). It will be recalled that this is Marx's
ormula for the transitional period between capitalism and
Under public ownership, each and every form of distribu-
ion is possible. The present form of distribution is one. The
of the economic system could, therefore, be trans-
erred to public hands without affecting the residual income
f anybody, even of those persons whose activities would be-
ome superfluous. It is to be supposed, however, that, if the
'rake of profit-seeking were taken off the machine, the total
1come in goods and services would be larger, and there
would be a surplus to distribute to those most in need of it
Threatened, therefore, with the collapse of the whole eco:
nomic system, either through wars of territorial expansion-
territorial expansion being one of the illusory solutions-a
through its own inherent defects, or both, the owning classe
would do the most sensible thing if they renounced thei1
ownership in return for its privilege, which is income.
How little public ownership is understood can be see1
from the comments of economists on the price structure i1
the U.S.S.R. According to one of them, writing about th
U.S.S.R. in the Harvard Quarterly Journal of
November 1936, 'the main charge against central plannin1
in the socialist state, if the purpose is to guide the prodm
tive resources into the directions where they yield the great!
est return, is that no substitute can be provided for the priq
ing system in a free market'. The main charge against thi
U.S.S.R. is that it appears to have encumbered itself
the financial arrangements of the system it has
Its revenue, as set out in the budget for I 9 3 6, comes mainll
from a turnover tax, but also from a profit tax on
and from loans and assessments. The official journal,
the organ of the Gosplan authorities, talks of the pro1
making capacities of the various industries, and of the bem
ficial effects on these of the Government's cheapening 1
credit. The whole of these operations could be convert(!
into an accounting procedure. Taxation and loans, und1
public ownership, are a confession of either ignorance or it;
competence: ignorance, because they are both unnecessa!l
or incompetence, because too much money has been issue1
and it must be withdrawn. Profit-making is an illusion, an
charging for credit a farce. As for the pricing system, a con
munity owning its own means of production and distrib
tion could give its goods away. Money would have the fum
tion of a railway ticket, which is cancelled when used. Tl
problem is two-fold: to fix prices in such a way that scar1
things are dear and plentiful things are cheap, and to ens111
that the value of the total number of tickets issued to col
:u:rners is equal to the total price of the goods and services
)ifered for sale. The system has no costs in any financial
;ense. It pays for what it produces with what it consumes. Un-
::rnployment in such a system becomes leisure, to be distri-
)uted equitably.
To conclude: the economists quarrel among themselves;
:he plain man has a quarrel with the economists. They have
)een arguing about the economic system for a hundred years
Jr more, and they have not yet produced a body of defini-
:ions that can be accepted. Their books betray them as guilty
Jf the worst of scientific errors-neglect of the fundamental
rule: essentia non sunt multiplicanda praeter necessitatem. Their
writings swarm with invented puppets and entities, which,
Llnder mathematical analysis, develop, not into an argument
bout things as they are, but into a complicated demonstra-
tion of the mutual relationships of the things invented. The
mathematics have been overdone. A writer in the Harvard
Journal quoted above uses Hessian determinants in a dis-
cussion of the best way to market a crop, and reaches a
conclusion too complicated to state in words! It is a question
whether the difrerential equations et hoc genus omne should
not be dismissed from economic studies, and whether eco-
nomics should not be brought down to earth as a branch of
'the technique of bookkeeping. The books of the economists
have the unreality of treatises on bridge or chess. The real
economic system is operated by the payments made within
it, not by these marginal futilities.
The following definitions are offered for the meditation
Df economists. The gross value of the output of goods and
:<;ervices in any period is:
) +CR2 +D
or the sum of the values added in the course of production.
Here R represents the cumulated residual income from the
Ralaries and wages paid in the current period plus the cumu-
lated residual income from the dividends paid in the currenr
period out of the profits made in the previous period,
R =L'(c
) and
D =.E{c41 +Ps1 +(Pn- P1o)+(p21- P2o)} =L'(c41 +Ps1 +q),
say, where the second suffixes, o and 1, indicate the previo11
and current periods, respectively. In these definitions ofm
and D, allowance is made for any difference there may m
between the dividends paid, in the current period, out of thi
profits made in the previous period and the dividends to ~ 1
paid in the next period out of the profits made in the curreJ11
period. The payments relate to the simultaneous, but d ! ~
ferent, stages of production. With the same notation, tb,
real net income in goods and services is:
) -.E(c
or the gross value of output minus depreciation, wastagi
obsolescence, etc. This is equal to:
Rl + R2 + .E(Psl + p' s1 + q + q'),
or the total cumulated residual income, plus total net profit1
plus the difference between the dividends to be paid ouL!ll
the profits made in the current period and the dividends pail
in the current period out of profits made in the previou1
period. The income that comes under the purview of th1
income tax authorities is:
Rl +R2 +.E(c21 +c'21 +Pzo+p'2o+Pao+p'ao)- t,
or the total cumulated residual income, plus the part .<ll
salaries, wages and dividends paid for services, plus the neJ
profits in the previous period, minus some or all of that pa11
of rates and taxes which is not spent directly or indirectly 011
goods or services-shown as t. According to some econo1
mists (Marshall et al.), this is the national income! The d e ~
preciation, wastage, obsolescence, etc., in these equatio111
are the depreciation, etc., of the whole economic system, t11
of that part of it which is in employment; and the profits all
those of the whole economic system. These definitions all
perfectly general, i.e., if true, they are true under all conditionl