The Power of the Single Number
A Political History of GDP
Seminar
IDDRI / SciencesPo
November 19, 2013
Philipp Lepenies, IASS
GDP as Phenomenon
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Most powerful statistical indicator in history
GDP integral part of our political culture
Recently: attempts to surpass or „dethrone“ GDP
But: GDP sits firmly in the saddle
notable absence of historical dimension in current discussions
• Why and how did GDP become the world‘s most powerful number?
What is GDP?
• GDP is Political Arithmetic:
– officially calculated by the State – influences politics directly
– allows „governing by numbers“
History of GDP
• National Income – Gross National Product – Gross Domestic Product
• from account to single number
• growth
• focus on production
• why more than mere statistics?
The History of GDP
Is a tale of…
– two countries: Britain and USA
– three men: William Petty, Colin Clark and Simon Kuznets
– tragedy: none of them succeeded
– triumph: of J. M. Keynes
Great Britain (England)
William Petty (1623 – 1687) • Land Surveyor and Anatomist
• Political Arithmetick
• „Express myself in terms of
number, weight, or measure
…to consider only such causes that have visible foundations in nature“
• „the perplexed and intricate ways of the world
are explained by science“
• “The glory of the prince, and the happiness
and greatness of the people”
• goal of government: peace and plenty
The First National Account
• THERE are of Men, Women, and Children, in England and Wales, about six Millions, whose Expence at 6l. 13s. 4d. per Annum, or near 4½d. per Diem, for Food, Housing, Cloaths, and all other necessaries, amount to 40 Millions, per Annum.
• NOW if the Annual proceed of the Stock, or Wealth of the Nation, yields but 15 millions, and the expence be 40. Then the labour of the People must furnish the other 25
Triumph or Tragedy?
• „Had not his doctrines offended France, they had long since seen the light and had found followers as well as improvements…to the advantage … of mankind“ (Petty‘s son, Lord Shelbourne)
• „I have no great faith in political arithmetic“
(Adam Smith, Wealth of Nations 1776)
Legacy
• Interest in „National Income“ – only academically
• Discovery of „labour“ as economic value
• Political arithmetic becomes „Statistik“
(Achenwall)
• problematic: combination and interpretation
Colin Clark (1905 – 1989)
•Chemist
•„inventor“ of GNP and National Income
•Member of Papal Commission on Birth Control
The National Income 1932
• Three ways of calculation: consumption, production and distribution
• Per capita income measure of progress
• Estimates macroeconomic aggregates
• numbers before theory
• National income as historical category
Conditions of Economic Progress 1940
• International comparison
• Sectoral development:
Agriculture
Industry
Services
• Begin of Development Economics
• New Picture of the World
After Clark
The Keynesian System
• System of National Accounts following requirements and logic of the Keynesian Theory • Focus on Income (tax base) – not production
• No single number
• Positive and important role of the state
• taken up by the govt. – but very late
• No planning
• No longer only historical number (quarterly)
The U.S.A.
Simon Kuznets (1901‐1985)
• empirical study before theory • „exemplar empiricist of the century“
Definition of National Income 1932
• start by end of all economic activity
provision of goods and services
• Moment individuals receive
their income
• Closely linked to distribution
• People‐centred, welfarist approach
• Extremely cautious
Birth of GNP
• Victory Program 1942
Keynes visit to US 1941
Result
• Focus on single‐number Gross National Product GNP
• Production‐focus ‐ politics of productivity
• Based on adapted System of National Accounts
• Political Arithmetic – Dept. Of Commerce
• Taken up by political rhetoric
Production
Kuznets 1945
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Income more important than production
Means to an end
Goal of economic activity? Market‐based economy
Role of state – harmony of accounts critical
Internationalization
• Assess reconstruction need and strength of European countries
• Methodology imposed on Marshall‐Plan recipient countries
• Possibility to classify and rank countries –
international comparison
Growth
Traditional View
Stagnation or Maturity
a cognitive change 1945/1946
1946
• Employment Act : Full Employment
• Council of Economic Advisors: growth of GNP
• Harrod Domar – Dynamization of Keynes (growth theory – endless growth and GNP planable) – GNP measure of future
• Development Economics (Rosenstein‐Rodan) 1947 and beyond
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Truman Doctrine: economic progress
1949 Point Four – geopolitical policy
Foster GNP growth around the world
and at home (race of the systems)
CIA calculation of Soviet GNP
Marshallplan and Modernization
•Production‐focus
•Hoffmann: „You can become like us, this was the original message of the Marshallplan“
•Idea of „catching‐up“ – economically,
but also politically – Modernization Theory •Civilizing (becoming Western) is the result of economic growth •Rostow: GNP per stage‐of‐growth – measure of future
Erhard 1957 / Galbraith 1958
Ludwig Erhard
• Expression of post‐war Germany‘s political „mentalité“
• GNP table at beginning
• GNP growth as perpetual government goal – for all socio‐economic worries
• Transformation of society
• End of fight over redistribution
• Bright future of „wealth for all“ – global happiness
Problems of Materialism
GDP / GNP
Result of extreme historic circumstances
Political useful in various times of crisis
more than economic statistics (always!)
defines globally how we view the economy and progress
• Political arithmetic
• „peace and plenty“
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• But: only one way to explain „the intricate ways of the world“
Lessons learnt
• Defenders of GDP: conscious of the historic context in which GNP/GDP emerged
• Advocates of alternative measures: conscious of what it took GDP to triumph – and what it might take to establish an alternative political arithmetic
Thank you!
philipp.lepenies@iass‐potsdam.de