| Abstract: | The seminal work on concepts of income implicitly assumed given expectations, thereby excluding all capital revaluations (gains and losses) from consideration. This became codified in national accounting systems and rationalized by arbitrary conventions. In a changing economy this exclusion is shown to warp the income stream, resulting in a theoretically inconsistent concept that arbitrarily mixes current and past relative prices (and hence expectations). A theoretically grounded concept is proposed that includes current accrued real capital gains and losses. It is also shown that replacement cost (or market value) depreciation is valid only if capital revaluations have been included in income. |
