Depreciation Reserves and their Economic Consequences

THE excess of depreciation reserve over the replacement needs is a constituent of the national income that eludes even the fastidious grip of the national income accountant. For an individual firm, depreciation reserves are not an income. But for&growing economy as has been demonstrated by Domar E.D., a portion of it is in the nature of income which can be used either for consumption or investment purposes. The greater the rate of growth, the higher proportion of depreciation reserves in the nature of income.