An Analysis of Government Revenue and Expenditure in ... - TARA

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follow from the correspondence between savings and investments.*
Savings are postponed consumption while investment represents
future expansion of capacity to consume. Yet on page 2 of the
Irish Statistical Survey " attention is drawn to the fact that, for
social accounting purposes, capital expenditure covers not only
outlays on formation of assets promising future monetary returns
or increases in national income but also outlays on investment
designed to provide non-monetary benefits to the whole community
"t (italics mine).
It seems to me that there is an inconsistancy between this statement,
which I believe to be correct on its own, and the identity
between national expenditure and national income. Unless this
inconsistancy is unreal, due to some kind of an optical illusion on
my part, one of the following three things appear inescapable :—
(1) the concept of national income must be enlarged to include
all the future returns expected from public capital outlays;
or
(2) the distinction between current and capital expenditures for
national income purposes must be dropped since it has been
violated by the inclusion, as capital, of expenditures which
do not carry the expectation of future returns in goods and
services constituting national income; or
(3) public capital outlays which promise a future return other
than goods and services which enter into the calculation of
national income must be treated as current expenditures.
I suggest that the third course is the obvious one to follow. The
really distinguishing feature of investment is that it is a means to
an end and not an end in itself and to some extent public capital
outlays evidently serve primarily a social end. The fact that in
satisfying the social end they may also increase the flow of goods
and services in the future, is, I admit, a complication requiring
an arbitrary convention, which would however be only an extension
of a similar convention applied in the private sector. A glance at
the operating expenses of any private undertaking would afford
many examples of expenses wholly treated as current despite the
fact that they are likely to increase the undertaking's future profits.
*cf. Irish Statistical Survey, 1958 :—•
" The savings of persons, public authorities and companies together with
provision for depreciation and net foreign disinvestment are used to finance
domestic capital formation.
In Table A. 7 gross domestic physical capital formation is equated to the
total amount available for investment."
I agree that the Keynesian identity between savings and investment does
appear to be at variance with the undeniable economic fact that part of the funds
going into investment is often financed from bank credit or from idle balancey,
and contrariwise, that savings (e.g. external disinvestment) are often used to
finance consumption. This, however, does not help much, because in our statistics
of national income this correspondence between savings and investment is
explicitly assumed.
fI wish to thank Mr. Broderick for acknowledging my part in this definition
of public capital outlays which are included in national expenditures. The
difficulty, however, does not lie in this definition (which, as he stated, is correct)
but in its reconciliation with the threefold identity between national income =
national product = national expenditure (with which I had nothing to do).