§3. Cost of Living, a Measure of Real Income

So, just as we went back of an individual's enjoyment income to his real income, we now go back of his real income, or his living, to his cost of living, the money measure of real income. You cannot measure in dollars either the inner event of your enjoyment while eating your dinner Edition: current; Page: [7] or the outer event of eating it, but you can find out definitely how much money that dinner cost you. In the same way, you cannot measure your enjoyment at moving picture theater, but you do know what you paid for your ticket; you cannot measure exactly what your house shelter is really worth to you, but you can tell how much you pay for your rent, or what is a fair equivalent for your rent if you happen to live in your own house. You cannot measure what it is worth to wear an evening suit, but you can find out what it costs to hire one, or a fair equivalent of its hire if, perchance, the suit belongs to you. Deducing such equivalents is an accountant's job.

The total cost of living, in the sense of money payments, is a negative item, being outgo rather than income; but it is our best practical measure of the positive items of real income for which those payments are made. For from this total valuation of positive real income may be subtracted the total valuation of the person's labor pain during the same period; if we wish to compare a laborer's income with that of a man who does no labor but lives on his income from capital (other than himself), a "rentier."

Enjoyment income, real income, and the cost of living are merely three different stages of income. All three run closely parallel to each other, although they are not exactly synchronous in time. These discrepancies, as has been intimated, are negligible as between real and enjoyment income. So also the time elapsing between the cost of living and the living is usually brief. There is a little delay between the spending of money at the box office and the seeing of the entertainment, or between paying board or rent and making use of the food or housing Edition: current; Page: [8] facilities. In many cases, the money payment follows rather than precedes the enjoyment.