WHAT WE COUNT COUNTS: Intellectual history and the National Accounts
- 30 Mar 2016
Having failed to forecast GDP accurately in the run-up to the global financial crisis, now is the time to consider critically how we measure economic transactions at the national level. That is the conclusion of research by Matthew Fright, which investigates the way in which economists created new paradigms in response to the chaos of the 1930s and the British public’s desire for certainty in the face of a crisis. From this charged academic atmosphere, we saw the emergence of the National Accounts.
His study, to be presented at the Economic History Society’s 2016 annual conference in Cambridge, argues that it is this intellectual heritage that shapes how we conceptualise the economic world today. If we are to stay true to the spirit of economic innovation in the face of crisis, then in a post-crash environment, now is the time to consider critically how to observe economic performance.
As Nicholas Sarkozy wrote in 2010, ‘Our statistics and accounts reflect our aspirations, the values that we assign things. They are inseparable from our vision of the world and the economy, of society, and our conception of human beings and our inter-relations.’ Since the National Accounts are a key part of government and business forward planning, it is crucial to understand where they came from and how they influence behaviour today.
Drawing on archival materials, this research highlights the factors that shaped the creation of these accounts and ultimately saw fringe research by individual academics turned into the principal tool for economic budgeting in the UK. Before this point government decisions on economic management didn’t consider the complex interrelationship between government and the economy.
Like any crime novel, the decision to measure the national economy and also to link it to government budgeting required a motive, a means and an opportunity.
This research shows how multiple motives fed into this new empirical drive, such as the copying of research performed internationally, innovations in welfare economics and the emergence of macroeconomics.
The means to achieving this came through the contributions of John Maynard Keynes. His drive to increase availability of economic data at the macro level was borne from a need to see how the economy worked nationally. In the light of the failures of the market in the Great Depression, increasingly economic thinkers were keen to understand the spillover effects of business activity on other areas of the economy.
In an environment of limited publicly available economic data, Keynes made use of Colin Clark’s National Income figures. Clark drew heavily on the concepts that Keynes had developed in his magnum opus The General Theory – a book that many turned to in the recent financial crisis.
Through correspondence with his colleagues, Keynes revolutionised the structuring of the Clark’s data and this formed the basis of his noted How to Pay for the War. Keynes’s deep interrogation of the national accounting terms led to the creation of a new ‘taxable income’ concept that increased the size of the taxable economy by 9%.
The opportunity for this came through the wartime need for economic efficiency. Central government needed secure funding to finance military spending, and so brought many economists such as Keynes into government. It also saw the creation of the Central Statistical Office. Together, they generated robust figures that could be used to forecast future spending, and future revenues, which became the foundation of British wartime budgets.
Matthew Fright concludes:
‘Bringing Keynes and the rich intellectual environment preceding the innovations of the wartime budget back into the National Income narrative, we can then see the implications. Not only is GDP the main approach for understanding how we mobilise national assets into tax receipts, but also it is supposed to represent a challenge to investment decisions of businesses to help ensure better coordination in the economic community.
‘Having failed to forecast GDP accurately in the run-up to the global financial crisis, now is the time to consider critically how we measure economic transactions at the national level.’
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