Theory of the Consumption Function
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Annual income is a poor proxy for a family's consumption and investment possibilities and may be measured with substantial error in population surveys.
“As has long been recognized (Modigliani and Brumberg 1954; Friedman 1957), annual income is a poor proxy for a family's consumption and investment possibilities, and in any case it may be measured with substantial error in population surveys.”
From Permanent Income and the Black-White Test Score Gap (2013) · cites this paper as Friedman 1957
Chapter VI distinguishes measured income from permanent income and describes consumption as adjusted to permanent income, supporting the point that annual income can be a poor proxy for consumption possibilities. In “The Relative versus the Absolute Income Hypotheses” (page unavailable), Friedman questions the accuracy of income and consumption data for a sample of farm families. That passage does not establish substantial income-measurement error in population surveys generally, and the passages do not directly address investment possibilities. (LLM, conf=0.82)
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Cited by
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FAMA, E. F. (1991) · The Journal of Finance · doi:10.1111/j.1540-6261.1991.tb04636.x · Cited by 5,350 · see citing works
Barsky, R. B., Juster, F. T., Kimball, M. S., & Shapiro, M. D. (1997) · The Quarterly Journal of Economics · doi:10.1162/003355397555280 · Cited by 2,400 · see citing works
Life-Cycle Variation in the Association between Current and Lifetime Earnings
Haider, S., & Solon, G. (2006) · doi:10.3386/w11943 · Cited by 209 · see citing works
Permanent Income and the Black-White Test Score Gap
Rothstein, J., & Wozny, N. (2013) · Journal of Human Resources · doi:10.3368/jhr.48.3.510 · Cited by 41 · see citing works
- Authors
- Friedman, M.
- Corresponding author
- Friedman, Milton
- Venue
- Princeton University Press eBooks
- Publisher
- Princeton University Press
- Published
- 1957-12-31
- OpenAlex
- W3204170628
- Cited by
- 3,335
- References
- 0
- Citations by year
- 2026: 154 · 2025: 164 · 2024: 151 · 2023: 115 · 2022: 142 · 2021: 164 · 2020: 117 · 2019: 141 · 2018: 140 · 2017: 107 · 2016: 117 · 2015: 102 · 2014: 103 · 2013: 94 · 2012: 99
- FWCI
- 49.50
- Type
- book
- Language
- en
- Open access
- green
- www.nber.org
- Locations
- Princeton University Press eBooks (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Project Muse (Johns Hopkins University) (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Economic Theory and Policy
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic theories and models
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic Theory and Institutions
- Keywords
- consumption function, consumer behavior, household consumption, income and consumption, Keynesian consumption theory
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