If we define spending as the transfer of ownership of money, from one person or entity to another, for a purpose……
And we define income as the amount of money the recipients of that spending obtain in the transaction.
This means that, for a given time period, all the income that is created in the whole economy equals all the spending that occurs in that economy.
Net income for individuals and entities is the amount of income they are given, minus the amount of spending those individuals or entities do.
Since for the entire economy all the income equals all the spending, then in the macroeconomy, Net Income, must equal Zero. Because net income is income minus spending. Therefore, if income equals spending, Net Income equals zero
This is not true for the microeconomy which studies firms and individuals who clearly can have income and spending be different amounts, and therefore have a “net income” that is not equal to zero.
Edit: This edit is added in response to the comment by Kush G.
First,
I consider spending and wealth as being calculated on different axes.
They are independent variables.
Spending is the transfer of ownership of money from one person or entity to another. The spender gives the money to the recipient of the spending, and that amount of spending becomes income for that recipient. In the macroeconomy total spending equals total income so that net income equals zero. In this model the spending we are talking about is gross spending. In other words when we are accounting for spending we are accounting for all the spending, all the transfers of ownership of money.
The spending must be done for a purpose. That is, to acquire some good, service. some labor or some other desired outcome.
All of the above mentioned outcomes have some value to those who spent to acquire that outcome. I consider wealth to be anything that has value.
N.B., money itself has value, money is part of wealth, however, the spending of that money is not wealth, the spending of that money is the transfer of ownership of the money, and calculated on a different axis, that which I call the income axis. Wealth is calculated on the wealth axis, and income is calculated on the income axis.
The spending of money does not, in and of itself, create wealth or change the level of wealth in an economy. Spending may be the reason that a particular type and amount of wealth is created, but the spending and therefore the income, is not a measure of that wealth.
When spending occurs, normally, it is associated with some production of wealth. The wealth is produced directly in response to some spending or in anticipation of some future spending. The spending often occurs in order to activate some labor or service that causes an increased production of wealth, or leads to the preservation of some amount of wealth. Spending , and its complement, income, is almost always associated with wealth production, or wealth preservation.
If the amount of wealth created in an economy is greater than the amount of wealth depleted, destroyed, deteriorated or depreciated, then NET PRODUCTION of wealth is positive.
In the special case of loans overall wealth is both reduced in that debt obligation is created, and increased by the same amount in that the lender has acquired an asset based on the value of that debt obligation, causing not overall change in the level of wealth and no change in the value of net production for the given time period.
If more wealth is depleted than is produced then NET PRODUCTION of wealth is negative.
The accounting of the net production of wealth is done on the wealth axis. The spending and therefore the income earned in this time period is calculated on the income axis. They are variables that interact and affect each other but they are still independent variables. Different levels of net production can be associated with the same amount of spending. Different levels of spending can be associated with the same amount of net production. They are independent variables.
To reiterate, spending in this model is gross spending, that is, when we are calculating the amount of spending and therefore the amount of income, we are accounting for all spending that is occurring. We are accounting for ALL transfers of ownership of money. Remember, in the macroeconomy, net spending (spending minus income), and net income (income minus spending) will always equal ZERO. The concept of overall net spending in the macroeconomy has no purpose. Only the amount of gross spending, all spending, can have any useful meaning, in a fully macroeconomic model.
So you can see that spending (= income) can be associated with a positive net production of wealth. It can also be associated with zero net production, if the amount of wealth depleted equals the amount of wealth produced. It can also be associated with, in a given time period, negative net production of wealth. Examples of periods of negative net production of wealth occurring despite even large amounts of spending and income, might include times of war, or natural disasters when spending is occurring in large amounts but the destruction of wealth is far greater than the production of wealth.
Most models presented in economics try to combine income and wealth production into one variable. What I am calling net production of wealth, those models call income. They also call income what I call income, the amount of money received by recipients of spending. For reasons I have explained, I do not think those models can accurately explain what is occurring in the macroeconomy. They are an attempt to explain a system that has at least 2 degrees of freedom, by creating a model that that has one degree of freedom.
Regarding Borrowing, borrowing is spending. Borrowing is spending by the lender to acquire an asset, an amount of wealth whose value is based on a debt obligation. The borrower agrees to a debt obligation in exchange for the cash. You will note that this transaction does NOT cause any net change in the level of wealth. An asset is created for the lender, who gives over money in the exact amount to the borrower creating a debt obligation in the amount of the loan. The spending is when the lender gives ownership of the money to the borrower. On the wealth axis, the lender has just acquired an amount of wealth with positive value, but it is matched by the debt obligation of the borrower (negative wealth), so the lending has produced no net increase in wealth. The amount of money does not change from that transaction, only who owns it changed. Looking strictly at the money supply, this transactions caused no change in the size of it.
As time goes on, interest accrues. This interest is paying for the services the banks provide, and those services can, in and of themselves, be considered a form of wealth, paying for all the labor, supplies, infrastructure and other expenses needed to keep the process of lending a viable venture. That is the part of the lending process where some wealth production and maintenance does occur.
I call this purchasing of a debt obligation, the purchasing of a “purely financial asset”. Other than those things interest and fees pay for, the transactions associated with purchasing a purely financial asset does not cause any change in the level of wealth.
Strictly speaking, in this model, the dispensing of the loan is gross spending by the lender, and it becomes gross income for the borrower, and spending by the borrower to buy back part of all of their loan obligation is gross income to the lender. Lending increases wealth by producing assets and decreases wealth by producing debt obligations. Overall effect no change in the level of wealth in the whole economy. Paying back loans decreases debt obligations, increasing overall wealth that way, but reduces the size of assets whose value is based on that debt obligation, but the same amount. Overall effect of paying back loans? No change in the level of wealth in the whole economy.
So if lending causes no increase in net production of wealth. What purpose does it have?
The purpose of lending is to take money from where it is not being spent, and where it is not inspiring wealth production, and get it in the hands of* someone who will spend it in a way that does lead to an increase in wealth production, that is, to an increase in the amount of spending on goods, services, labor or other desired outcomes, (other than spending to acquire purely financial assets).
edit 2
I would like to propose another way to look at income.
Heretofore I have just looked at income as being what the recipient of spending gains when they receive the money the spender gives them, and that the amount of the income must, as a result, always be exactly equal to the amount of the spending
This means net income must always be equal to zero
However, as is sometimes pointed out, money is not the only thing that people or entities can gain as a result of commerce. Besides money, people can also gain items of wealth.
I have pointed out in other answers how we can account for the wealth gained or lost during a period of commerce by defining what I have called net production of wealth, which I define as wealth produced minus wealth depleted. Or simply how much wealth is increased minus how much wealth is decreased.
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