海角社区

People with a historical bent know that behind things that are often quickly dismissed as boring, tedious or mundane, there鈥檚 usually a good story.听Consider gross domestic product.

Gross domestic product, which often goes by its initials, GDP, is the big kahuna of economic measures.听Defined by the U.S. Department of Commerce鈥檚 Bureau of Economic Analysis (BEA) as 鈥渢he total market value of the final goods and services produced within a country in a year,鈥� GDP is the most comprehensive measure of a country鈥檚 economic activity.

Ask an economist how big the U.S. economy is and you鈥檒l be provided with the most recent estimate of U.S. GDP.听Ask how the U.S. economy is doing and you鈥檒l be provided with the most recent one-year percentage change in U.S. GDP.

GDP is not a topic for everyone.听But before moving on or dozing off, readers in touch with their inner historian ask, 鈥淲ho thought of GDP, and why?鈥�

The story of GDP begins in Britain with William Petty (1623-1687): physician, philosopher, economist.听Historians of economics credit Petty with the first systematic effort to measure not GDP but national income, GDP鈥檚 first cousin.听What prompted Petty鈥檚 effort?听His country was at war.

Discord over trade policies unresolved by the First Anglo-Dutch War (1652-1654) had Britain and Holland at each other鈥檚 throats again in the Second Anglo-Dutch War (1664-1667).听Petty felt confident that Britain had the economic capacity to finance the war from tax revenue and produce sufficient armaments to defeat the Dutch.听But he wanted reliable evidence on the size of Britain鈥檚 economy to prove it 鈥� to himself and his countrymen.

Petty devised a system for estimating national income and wealth using double-entry bookkeeping, then described his system in a work published in 1665.听Petty鈥檚 use of double-entry bookkeeping established a precedent: the BEA鈥檚 National Income and Product Accounts, from which we get estimates of U.S. GDP, is a system of double-entry accounts.

High government officials found Petty鈥檚 system impressive but his underlying data, thin.听The idea of measuring the size of an economy soon receded from political consideration.听Charles Davenant (1656-1714) brought it back with greater effect in a pamphlet published in 1694. The inspiration for Davenant鈥檚 pamphlet is clear from its title: 鈥淎n Essay upon the Ways and Means of Supplying the War,鈥� in this case, the Nine Year鈥檚 War with France.听Davenant鈥檚 purpose for estimating national income was the same as Petty鈥檚: to empirically assess Britain鈥檚 capacity to wage and finance a war.

Small subsets of successive generations of economists spent the next 196 years arguing about what should and what shouldn鈥檛 be included in national income.听Adam Smith (1723-1790) instigated much of the arguing by insisting, in his 鈥淲ealth of Nations鈥� (1776), that a nation鈥檚 wealth is enhanced only by the production of physical commodities.

Alfred Marshall (1842-1924) ended much of the arguing in 1890 by showing, in his 鈥淧rinciples of Economics,鈥� why Smith was silly to think that services contribute nothing to a nation鈥檚 wealth.听Economists have found it silly to think about services the way Smith did ever since.

听The German government entered 1914 with $70 million in gold stored away for the sole purpose of financing a future war, should one arise.听World War I did that summer.听By 1916, a major German offensive would ring up $70 million in expenses in a day and a half. After World War I came the precarious 1920s, the Great Depression and World War II, one right after the other. The quest for GDP grew more urgent with each event. We鈥檒l explore that in my next column. 听听