National Income: Definition, Theories, Formula & Distribution
National income
National income is the monetary value of the sum total of all final goods and services produced by the factors of production of a country during a year expressed in money at current prices. In other words, they are the income of a country, produced by national agents at market prices, which is the opposite of what it costs to produce them.
National income is a concept used by economists to measure the functioning of an economy and three important variables are used to measure it: National income, Gross domestic product and national expenditure.
The relationship between the magnitudes used to measure them is that, what is produced is what is consumed, and to consume, agents have to spend. Services or intermediate goods that are used in the production process should not be counted, so double counting doesn’t occur when calculating it.
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Distribution Theories of national income
The way in which national income is distributed can occur in different ways, depending on the political and economic ideology that addresses this issue, from Marxist to capitalist ideologies.
Distribution without measurement rate
It comes from the socialist utopia and establishes that everyone will work according to their ability and receive resources according to their needs. But this assumes that production has been achieved efficiently and it’s so abundant that it can be stored and people will be able to get what they require for free without restriction.
However, the truth is that it’s not feasible because what would happen is that everyone would take as much as possible and want the best. Even if the distribution were done with the highest civic order, waste would occur and there would be negative repercussions on the future production and employment process because there is no adequate control on consumption.
Distribution in kind
The theory supposes an authoritarian planning of the distribution of production, there is a decoupling between the planning of production and the one of consumption.
The government establishes a type of reasoning where the amount of each product that corresponds to each member of society is set. This necessarily includes regulating the needs and preferences of consumers, something that no society has accepted but has been imposed in many cases, those who support these measures tend to be socialists.
The functional distribution of value
The purchasing power of individuals depends on their contribution to the production process, their purchasing power will depend on the contribution they make to the national income. People are able to purchase goods and services according to their preferences and needs with no limitations other than their economic availability.
The national income distribution system most widely adopted by countries
The national income distribution system most widely adopted by countries is the “functional value distribution system” because it’s where there is a balanced link between production and consumption.
When the subjects participate in the production process, they receive remuneration and this allows them to acquire the goods and services in the quantity and particular preferences, without other limits than those derived from their contribution to production and their income.
Societies like to make decisions without having more restrictions than those resulting from coexistence and the rights of others. Meritocracy stimulates the action of economic subjects and creates collective well-being. Furthermore, restricting freedom goes against the nature of man, especially in these cases, that is why no government should intervene in an authoritarian manner in how its population satisfies their needs.
Problems affecting the redistribution of national income
The problems that affect the redistribution of income are the distortion that is generated when trying to achieve that objective because the excuse of redistribution is used but for populist political purposes that often lead to greater poverty and inequalities.
The most developed countries of America and Europe allocate many resources to social programs that protect children, the poor, the elderly, the disabled, and sometimes the unemployed.
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