CH. 6 THE DEFINITION OF INCOME 55

of what he buys from other entrepreneurs. Thus ina completely integrated system(where A1= 0) con-sumption is equal to A and investment to— U, i.e.to G-(G´- B´). The slight complication of the above,through the introduction of A1, is simply due to thedesirability of providing in a generalised way for thecase of a non-integrated system of production.

Furthermore, the effective demand is simply theaggregate income(or proceeds) which the entre-preneurs expect to receive, inclusive of the incomeswhich they will hand on to the other factors of pro-duction, from the amount of current employment whichthey decide to give. The aggregate demand functionrelates various hypothetical quantities of employmentto the proceeds which their outputs are expected toyield; and the effective demand is the point on theaggregate demand function which becomes effectivebecause, taken in conjunction with the conditions ofsupply, it corresponds to the level of employment whichmaximises the entrepreneur’s expectation of profit.

This set of definitions also has the advantage thatwe can equate the marginal proceeds(or income) tothe marginal factor cost; and thus arrive at the samesort of propositions relating marginal proceeds thusdefined to marginal factor costs as have been statedby those economists who, by ignoring user cost orassuming it to be zero, have equated supply price1 tomarginal factor cost.2

1 Supply price is, I think, an incompletely defined term, if the problem ofdefining user cost has been ignored. The matter is further discussed in theappendix to this chapter, where I argue that the exclusion of user cost fromsupply price, whilst sometimes appropriate in the case of aggregate supplyprice, is inappropriate to the problems of the supply price of a unit of outputfor an individual firm.

2 For example, let us take Zω= ϕ(N), or alternatively Z= W.ϕ(N) as theaggregate supply function(where W is the wage-unit and W. Zω= Z).Then, since the proceeds of the marginal product is equal to the marginalfactor-cost at every point on the aggregate supply curve, we have

ΔN= ΔAω- ΔUω= ΔZω= Δϕ(N);

that is to say ϕ´(N)= 1; provided that factor cost bears a constant ratio towage cost, and that the aggregate supply function for each firm(the number