Income concepts — a more formal consideration

Abstract

What exactly do we mean by ‘better-offness’? One answer to this is represented by the economist Irving Fisher. He argued that better-offness is strictly only created or affected by something within the mind of an individual. It is thus essentially a personal, subjective, psychological concept:

For each individual, only those events which come within the purview of his experience are of direct concern. It is these events — the psychic experiences of the individual mind — which constitute ultimate income for that individual.

Money is of no use to us until it is spent. The ultimate wages are not paid in terms of money but in the enjoyment it buys. The dividend cheque becomes income in the ultimate sense only when we eat the food, wear the clothes, or ride in the automobile which are bought with the cheque.