Income And The Hamiltonian1

Among the many interpretations of real national income are (i) the return to national wealth and (ii) the Hamiltonian of an appropriately‐chosen dynamic model of the economy. These interpretations are sometimes alleged to be equivalent and to constitute the self‐evidently ideal definition to which statistics of real national income should conform as closely as possible., The allegation is correct on some very restrictive assumptions about technology and taste. Otherwise, these interpretations are inconsistent, inexpedient as definitions of real national income and significantly at variance with the usage in the national accounts. The return to wealth is unmeasurable with the currently‐available data. The Hamiltonian is typically in the wrong units. It is an accurate reflection of neither productive capacity nor welfare in an intertemporal context. It is not well‐defined in a tax‐distorted economy. It is rarely an indicator of the return to wealth. A personn's income is “the maximum value he can consume during a week and still be as well off at the end of the week as he was at the beginning” J. R. Hicks2 “…the rigorous search for a meaningful income concept leads to a rejection of all current income concepts and ends up with something closer to a “wealth‐like magnitude,” such as the present discounted value of future consumption. …a standard welfare interpretation of NNP is that it is the largest permanently maintainable value of consumption. …What we have been calling net national product is just the Hamiltonian for a general optimization problem.” Martin L. weitman3