Definitions of National Income

Definition of National Income

The concept of ‘National Income’ occupies a prominent place in economic theory. The importance of National Income flows from the fact that it is the source from which people,as owners of factors of production,receive income. It gives the measure of economic performance of a nation.

Marshall’s Definition:

Marshall defines national income or national dividend in the following way: “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.”

The term net refers to deductions from total gross produce in respect of depreciation and wearing out of the plant and equipment plus additions of net income from abroad. This may be construed as national dividend as a flow of goods and services but not a fund. In Marshall’s words, “the national dividend is at once the aggregate net product of and the sole source of payment for all agents of production within the country.” Thus, what is produced in an economy is distributed among the various factors of production.

Pigou’s Definition:

According to Pigou “National income is that part of the objective income of the community, including, of course, income derived from abroad which can be measured in money.” This definition is rather narrow as it does not include unmarketed goods and services for which no money payment is involved. This definition involves certain paradoxes. He argues that if a man marries his maid-servant the national income is reduced since he is not supposed to pay any remuneration or wages to his housewife who was paid before marriage. Anyway, Pigou’s definition is narrow.

Prof. Cairncross says; “The national income is, in fact, simply the output upside down. What we produce flows into a reser­voir; what are consumed is drawn from the same reservoir, from the joint output of the community. What is clear from the above discussion is that Marshall’s definition seems to be more comprehensive.

Fisher’s Definition:

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.”

Fisher’s definition is considered to be better than that of Marshall or Pigou, because Fisher’s definition provides an adequate concept of economic welfare which is dependent on consumption and consumption represents our standard of living.

Modern Definition:

National income is a money measure of the value of all goods and services produced in a year by a nation. The National Sample Survey defines national income as “money measures of the net aggregates of all commodities and services accruing to the inhabitants of a community during a specific period.” According to the National Income Committee of India” A national income estimate measures the volume of commodities and services turned out- during a given period, counted with duplication.”

According to Froyen:

“National income is the sum of all factor earnings from current production of goods and services. Factor earnings are incomes of factors of production.” In the same vein, Gardner Ackley defines “National income is the sum of all (a) wages, salaries, commissions, bonuses and other form of incomes, (b) net income from rentals and royalties, (c) interest, (d) profit.