Consumption: consumption function. Keynesian function of consumption

Consumption, the consumption function is one of the most important concepts of modern economic theory. Different approaches to the substantiation of this term lead to very significant differences in understanding of its inner essence.

The concept of consumption and savings

The functions of saving and consumption are extremely important for understanding the essence of the market economy in its various interpretations. In the most general form, consumption is regarded as the sum of money spent in a given state, the main purpose of which is the purchase of tangible items and the consumption of any services. It is also extremely important that these goods and services are used exclusively to meet individual and collective material and spiritual needs.

Consumption, consumption function is in the closest relationship with the function of saving. It, in turn, is nothing but a part of the income received as a result of a certain activity, which at that particular moment remains unoccupied and is the so-called safety pillow for a rainy day. At the same time, some of the savings can be invested by citizens in certain projects, thus turning into investments. It is the influence and interaction of such elements of the economy as consumption, investment and saving that is one of the main problems that scientists and economists of the 20th and 21st centuries occupied. A special role here was played by the works of D. Keynes.

The main provisions of the theory of D. M. Keynes

D. Keynes is rightfully considered one of the most important figures in the economic science of the twentieth century. His contribution to the theoretical substantiation of a variety of macroeconomic problems is marked by a number of state and international awards, as well as the emergence of a special term - "Keynesianism", used to denote a special direction in the neoclassical theory.

The function of Keynes's consumption is only one of the provisions of his neoclassical concept. The essence of it was, on the one hand, that any market system is a priori unstable, and on the other hand, that an active state policy is needed to regulate and intervene in this system. Stimulating demand, the scientist pointed out in his works, the government has the opportunity to overcome crisis phenomena in the shortest possible time. Consumption, saving and investing play extremely important roles in this case.

The functions of saving and consumption as components of the formation of effective demand

In his theoretical calculations, Keynes proceeded from the premise that the main problem of almost any economic theory is the creation of a balance between supply and demand, with the former somewhat ahead of the second. In turn, effective demand is the most important step towards a constant increase in the level of national income, which is the most important task of any state in a market economy.

Thus, the Keynesian function of consumption is the basis for the successful development of the whole society as a whole. A huge role in its correct interpretation and implementation lies on the shoulders of the state.

Consumption and its structure

Compared with savings and investment, consumption, consumption function play a much more prominent role in the gross national product of any state. According to the latest data, in our country it is just over 50%, while in the United States it is almost 70%. Thus, consumption is an important indicator of the development of market relations and the degree of state influence on the economic processes in the country.

The structure of consumption usually includes all the costs of a family. However, in order to make it easier to analyze the internal structure of consumption throughout the country, there are usually several main groups of goods and services that are divided into several groups according to the level of their acquisition. At the same time, it is assumed that the totality of purchased goods and services by each specific family is unique, therefore, in the general analysis, the so-called consumption function model is used.

Engel's models: essence and consequences

Models that describe the functions of consumption in economic science, were called Engel models, in honor of the famous German statistics of the second half of the XIX century E. Engel.

The German scientist, in formulating his laws, proceeded from the assumption that the priority groups of expenditure groups are in the following order: food, clothing, apartment (house), transport, health and education services, savings.

However, Engel not only singled out these groups, but also proved a certain regularity: if the family's incomes increase over a certain period of time, the food costs will also increase, reducing their share in the overall consumption structure. The fastest rates with increasing incomes should grow in savings, because, according to Engel, they belong to a group of luxury goods.

Keynesian consumption function: the main factors influencing the priority of citizens' choice

D. Keynes was in many ways consistent with the concept of Engel, but gave it a more finished and mathematically verified view. According to his teaching, consumption is determined by the following main factors.

First, these are the incomes that remain with citizens after the payment of all compulsory taxes and fees in favor of the state. This disposable income is the foundation of future citizens' expenses.

Secondly, Keynes's function of consumption included such an important indicator as the ratio of the level of costs (that is, consumption) to total income. This factor was called the average propensity to consume, and, according to the scientist, this coefficient should gradually decrease with the growth of incomes of citizens.

Finally, thirdly, Keynes specifically introduced such a notion as the marginal level of propensity to consume. This ratio showed the share of consumption in the money that the citizen received in excess of his previous income.

Key postulates of Keynes's theory

Consumption, the consumption function, which the well-known economist has developed and mathematically proved , will make it possible to conclude that with the growth of the family's income, its expenditure on consumption also increases. However, and this is Keynes's key thought, not all of the additional income will go to consumption, some of it may turn out to be in savings, as well as in investments. The scientist attributed the following factors to the main factors affecting this distribution:

1. Consumption is the factor that determines the way of life of the predominantly poor and middle classes of society. If we are talking about the elite, then practically all the additional income turns into savings or investments.
2. Consumption is determined not only by the representation of a particular person and family, but also by the social environment. It is proved that even people with not very high incomes seek (at least partially) to buy those things that are acquired by the middle and upper layers of society, acting as a kind of social standard. That is why, often enough, the level of savings in the lower strata is much lower even than what they could have.
3. In the event of a fall in income, the level of consumption will increase at a much higher rate than it fell during the reverse process.

The main conclusion of these postulates of Keynes is the absence of a direct upward (or downward) dependence between the increase in family income and the increase in consumption.

Graphical representation of the function

All the basic assumptions and hypotheses of Keynes are in good agreement with the consumption schedule obtained. The graph of the consumption function is a straight line at an angle to the axis of abscissas, the value of which is less than 45 °, the more developed the market in relation to the given society.

A virtual point crossing the prospective schedule, in which all revenues go to consumption, is called a point at which there are no savings, but the family does not make loans either. To the right of this function there is a zone of positive savings, and to the left - a negative one, that is, when a person is forced to take out loans to provide himself with at least elementary goods.

The consumption function has the form of a line stretched to the right side. In order to determine the level of consumption, it is necessary to calculate the distance from the y-axis to the point under consideration. At the same time, the quantitative expression of savings can be calculated by drawing a segment from the function studied to the bisector.

The Keynesian Psychological Law

As mentioned above, among other things, the American scientist has introduced into the scientific circulation the concept of "marginal propensity to consume," which is a quotient from the increase in consumption to a similar indicator of income. It was from this relationship that the famous "Keynesian psychological law" emerged.

The essence of this law confirms the consumption schedule - the higher the income level of a particular person or any particular family, the greater part of these additional funds goes to savings. By the structure of expenditure of funds can be judged both on the level of the family's well-being and on the level of economic development of the whole society.

This law also confirms the utility principle formulated in the 19th century. The utility function of consumption has the form of a ratio of satisfaction with all goods and the total number of acquired tangible items and services. The higher the level of income, the higher the degree of usefulness of the acquired things.