From Cambridge to Eternity: “Marginal Propensity to Consume”

 

We need accounting because our time is limited; more specifically, accounting is for promotion of efficiency, namely, value created per hour (U∙M∙T^-1). Moreover, the efficiency accounting itself shall be periodic because we need utilities (U∙M) as energy of indefinite kinds while the bodily capacity, physical, physiological or psychological, is limited.

            Let us take the year (annum in Latin) as the accounting period in discussing macroeconomic affairs (mostly in U∙M∙T^-1, or utilities per annum).   

The Cycle of Life. History is irrelevant except for lessons therefrom. We have two economically-relevant genres in life, that is, the current year and the many future years (ante the River). On one hand, we have to consume things necessary for survival in the current year and prepare for the better-yet-uncertain number of years still to come. On the other hand, our annual income over the lifecycle changes far more greatly than the wants for utilities of “final goods and services” do.

            We are destined to fill the gap in each and every year (T^-1) by way of “asset management” or “portfolio management” more professionally. Needless to say, the asset includes the human asset, or “credit” in Finance. We come back to this tomorrow. 

“Marginal Propensity to Consume.” Now suppose a four-person closed economy in 1936 as follows with the earliest in lifecycle at the top and down:   

             National Income Accounting (in trillion thalers per annum)

Person	Monetary Income	“Consumption”		± Asset Position
		Spending	MPC*	“Saving”	MPS*
Jane D’Introduction	10	100	10.0	-90	-9.0
Jack de Growth	200	250	1.3	-50	-0.3
Jill da Maturity	700	300	0.4	400	0.6
John von Decline	90	150	1.7	-60	-0.7
“Nominal” GNI≡GDP	1,000	800	0.8	200	0.2

              *MPC for Marginal propensity to consume; MPS for saving

            More than clearly, the “cross-sectional” (or interpersonal to be precise) difference in the “marginal propensity to consume” (MPC) is much more dramatic than the life cycle might imply. As much clearly, such names as “unearned income” or “capital income” is irrelevant as for the economy as a whole, whether “fallacy of composition is any guide or not.   

            We discuss an open economy later to find out that openness does not make any difference.

Thereafter in Here. In the years of 1937 and 1938, a few of us be dead while a few others be born. In years from 1939 to 2000, a half of us be dead while more or less as many be born. In 125 years after 1936, all of us are replaced by about the same number of Homo Sapience.

            Year in year out, life does not cycle across the space, but always and everywhere it cycles over the time. Under the blue sky, the MPC “0.8” of the aggregate economy would remain at that “pretty much standard fraction,” particularly in the short run wherein “creative destruction” would belong to the margin of error. Logically saying, the shorter the run the more constant the MPC is. 

There-aside in Eternity. Where time flies across, the consumption, or the total spending save savings (S≡ Y- C), would certainly increase in response to and only to “fiscal policy” of income redistribution.  

            The only regret: GDP (Y), real or nominal, would not even “vary” per light-year (LY); or, ΔY/ΔLY= ΔC/ΔLY+ ΔS/ΔLY≡ 0,000,000,000,000 (thalers per lux-annum).