Utility Analysis and the Consumption Function

Of John Maynard Keynes’ many hypotheses, the one that has been subject to the most intensive empirical study is the relation between income and consumption. By now, his generalization is familiar to all:

The fundamental psychological law, upon which we are entitled to depend with great confidence both a priori from our knowledge of human nature and from the detailed facts of experience, is that men are disposed, as a rule and on the average, to increase their consumption as their income increases, but not by as much as the increase in their income. ³