On the Equivalence of Community Indifference and the Aggregate Consumption Function

Abstract

There exist in the economic literature two quite different types of macroeconomic models; the Keynesian unemployment model and the classical model employed in trade theory. As both are aggregate models, in both we have the question of the conditions under which the various central parameters of the two can be aggregated. While the same basic kinds of aggregation problems arise on the production side of these two models, there would appear to be differences on the demand side, for while in the Keynesian model it is the question of whether individual consumption functions can be aggregated that is important, in the trade model the question of interest is when aggregate utility functions can be defined. While the first of these questions does not receive a disproportionate amount of attention in the theoretical discussions of Keynesian models, the latter problem always seems to cast a shadow on international trade discussions. The purpose of this paper is to present a simple demonstration that from a theoretical point of view, the two aggregation problems referred to above are equivalent. That is, we will show that the existence of a community indifference curve is a necessary and sufficient condition for the existence of an aggregate consumption function.