The Consumption Function Controversy

The consumption function is a statistical relationship, of disputed stability, between national and national consumption. Its form is usually taken as linear. Income is treated as the independent variable, and the income figures used refer usually to disposable income, after deduction of personal taxes. Consumption is the dependent variable, and may refer either to consumer expenditures as a whole or to some major subdivision, such as expenditures on durable goods. The consumption function has particular importance in the Keynesian system, for its slope is the marginal propensity to consume and bears a simple mathematical relationship to the multiplier. It should not be confused with the family consumption functions of budget studies, which compare the patterns of personal consumption of families in different groups.' In Keynes' symbols, Y represents income, C consumption, and I investment. All payments arise by expenditure for consumption or investment, yielding a basic identity from which a series of further identities is derived.2