INCOME AND CAPITAL

in this case your salary (or it may be dividends, rent,interest, or profits) and it exceeds real income by theamount of your savings. On the other hand, you may beliving beyond your (money) income. This means, ex-pressed in terms of the concepts here used, that yourreal income for the year is greater than your moneyincome.

That all one spends on his living measures real income,even when he “lives beyond his income” (beyond hismoney income), may be a hard saying to some who havenever attempted to work out consistent definitions ofeconomic concepts which will not only satisfy the require-ments of economic theory but which will also bring theseeconomic concepts into conformity with the theory andpractice of accountancy. But a definition of income whichsatisfies both theory and practice, in both economics andaccountancy, must reckon as income in the most basicsense all those uses, services, or living for which the costof living is expended even though such expenditure mayexceed the money income.

Thus we have a picture of three successive stages, oraspects, of a man’s income:

Enjoyment or psychic income, consisting of agreeablesensations and experiences;

Real income measured by the cost of living;

Money income, consisting of the money received by aman for meeting his costs of living;

The last—money income—is most commonly calledincome; and the first—enjoyment income—is the mostfundamental. But, for accounting purposes, real income,as measured by the cost of living, is the most practical . 3

’Later in this chapter we shall see that these three sorts of incomeare all of a piece, parts of the entire economic fabric of services and

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