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The Power of the
Single Number:
A Political History of GDP
Public Lecture
Department of International Development, LSE
April 28, 2015
Philipp Lepenies, Freie Universität Berlin
#LSEGDPHistory
GDP as Phenomenon
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Most powerful statistical indicator in history
part of our political culture
recently: attempts to „dethrone“ GDP
sits firmly in the saddle
absence of historical dimension
• Why and how did GDP become the world‘s
most powerful number?
What is GDP?
GDP is Political Arithmetic
History of GDP – what to explain?
• National Income versus National Product
(Gross National or Gross Domestic Product)
• focus on production
• from account to single number
• growth
• more than economic 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
– transnational historiography (Germany)
– the role of Growth
Structure
1.
2.
3.
4.
Britain
USA
Germany
Growth
Great Britain (England)
William Petty (1623 – 1687)
• Political Arithmetick
• „the method is not very usual, for
instead of using words, I express myself
in terms of number, weight, or measure
and consider only such causes
that have visible foundations
in nature“
• science explains „the perplexed and
intricate ways of the world“
• “The glory of the prince, and the
happiness and greatness of the people”
- goal of government: peace and plenty
The First National Account
• Men, Women, and Children,
in England and Wales, about six Millions,
whose Expence for Food, Housing, Cloaths,
and all other necessaries,
amount to 40 Millions, per Annum.
• 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.
Debit
Expenditure
40
Total
40
Credit
yield from assets
Labour
Total
15
25
40
Legacy
• interest in „National Income“ – only
academically
• discovery of „labour“ as economic value
• political arithmetic becomes „Statistik“
• 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:
1. Agriculture
2. Industry
3. Services
• 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)
• „exemplar empiricist of the century“
• empirical study before theory
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
Germany
United States Strategic Bombing Survey
Marshallplan and Modernization
• production-focus
• Hoffmann: „You can become
like us, this was the message
of the Marshallplan“
• idea of „catching-up“
Growth
Traditional View
Stagnation or Maturity
a cognitive change 1945/1946
1946 and beyond
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Employment Act
Council of Economic Advisors
Truman Doctrine: economic progress
1949 Point Four – geopolitical policy
Race of Systems - CIA calculation of Soviet GNP
Unique improvement of material living
conditions
Growth: Sign of New Times
Erhard 1957 / Galbraith 1958
Lessons learnt
• GDP only one way to explain „the intricate ways
of the world“
• 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!
[email protected]