At the centre of the service economy argument is ‘Engel’s Law’, which says that we have a hierarchy of needs, and that as the most pressing are satisfied, so our increasing means are devoted to the less pressing; that is, that our proportionate marginal expenditure on necessities decreases as our income increases. We can most easily visualise this theorem in the form shown in Figure 5.1. The expenditure categories a, b and c are ranked according to their significance — a meets the most pressing needs, c the least. We see on the diagram that as the size of the weekly budget increases, the proportion of it spent on a decreases, on b, first increases and then decreases, and on c continuously increases. We might alternatively represent expenditure on each category as a proportion of the total; in which case we get Figure 5.2.
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Notes and References
- 1.C. Northcote Parkinson, Parkinson’s Law (London: Penguin, 1970).Google Scholar
- 2.A somewhat similar formulation is to be found in Scott Burns, The Household Economy (Boston: Beacon Press, 1976). Burns suggests that household investment in the United States has a higher real rate of return to the individual than any available alternative.Google Scholar