Entrepreneurship, knowledge and employment

Pigou on the “National dividend”: What exactly is up for division?

Ormazabal Kepa, University of the Basque Country

This paper intends to critically analyze a unique passage of Pigou’s “The Theory of Unemployment” where Pigou raises a fundamental theoretical problem in the definition of the national dividend or national income which has immediate and far reaching consequences on price theory and of the comprehension of the circulation of money. Pigou is one of the very few economists who have noticed this problem and discussed it in the History of Economics after Smith. The problem can be stated as follows: the part of the value of output that makes up for depreciation; is or is not up for division? Does or does not it become income (that is, wages and profits) in the aggregate? The passage analyzed in this paper is exceptional in the History of Economics because, on the basis of the standard argument that concludes that the full value of output becomes income in the aggregate, Pigou takes the contrary and minoritarian position that the value of the part of output that makes up for depreciation does not become income for any factor of the economy; therefore, this part of output is not up for division.


Keywords: Aggregate income, GDP, Net National Income

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