INCOME AT PRODUCT AND FACTOR PRICES1

Abstract

FOR A NUMBER of years the Department of Commerce has been reporting two measures of our nation's net income, Net National Product and National Income.2 As is well known, these concepts of income differ because they measure income at product and factor prices respectively.3 Underlying a considerable part4 of the difference is the role of indirect business taxes in income generation. While these taxes are excluded from National Income which aims to measure exclusively the flow of incomes to productive services, they are included in Net National Product because they constitute part of the price of the goods that have been produced. The conceptual foundations of these two measures of net income are still questioned by many students of national income economics.5 At least four different points of view are involved in the continuing debate. Two of them tend to support the Department of Commerce's concepts, but the other two cast doubt upon the meaningfulness of these dual measures of net income. The measurement of income at both product and factor prices is supported by the statistical convenience of having an estimate of income at product prices. Such an estimate can be more readily converted into a measure of real income.6 Since the price indexes that