What do we want, increasing per capita income or increasing purchasing capacity?

PROUT (PROgressive Utilization Theory) suggests that increases in per capita income are not a sufficiently reliable and scientific index to determine the standard and progress of a particular socio-economic unit. Rather, this approach is misleading and deceitful, because it refers to a simple mathematical calculation of total national income divided by total population. This does not give the correct picture of the standard of living of the people of a particular socio-economic unit, as the wealth disparity in society is concealed. Per capita income shows the mean and not the variation of income distribution. If inflation is also considered, the reliability of per capita income is further reduced.

On the other hand, purchasing capacity is the real index of how a person’s economic needs can be met by their income. All PROUT’s plans and programmes in the socio-economic sphere should be aimed at increasing the purchasing capacity of the people. Note that PROUT stresses increasing purchasing capacity and not per capita income. Per capita income is not a proper indication of the increase in the standard of living of the people because while people may have very high incomes they may not be able to purchase the necessities of life. On the other hand if the per capita income is low but people have great purchasing capacity they are much better off. So purchasing capacity and not per capita income is the true measure of economic prosperity. Everyone’s requirements should be within their pecuniary periphery or purchasing capacity.

Prabhat Rainjan Sarkar

www.prout.org