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The history of our most prominent economic statistic, gross domestic product (GDP), is mostly a war story.

As noted in our previous discussion, the outbreak of the Second Anglo-Dutch War (1664-1667) prompted British economist William Petty (1623-1687) to wonder: is Britain capable of producing sufficient armaments to defeat Holland and sufficient income to pay for the war with tax revenues? Though many recognized that the answer to both questions depended on the 鈥渟ize鈥� of the British economy, Petty wrote an essay describing how to measure it. Historians of economics consider Petty鈥檚 1665 essay as the first systematic effort to measure national income, which is the first cousin of gross domestic product (GDP), the measure of an economy鈥檚 size used today.

The first systematic estimates of national income in the U.S were produced by individual researchers after 1850. Curiosity and data availability, not war, prompted the work. The best work took practical advantage of the detail on American industries provided by the country鈥檚 decennial censuses.听The researcher used census detail to estimate the value added (the market value of output less input costs) by each U.S. industry, then added up all the value added estimates to get an estimate of national income.听

Interest among U.S. economists, statisticians and politicians in developing national income and other economic statistics increased considerably in the years that brought rapid industrialization and violent business cycles (roughly 1880-1914).听But it took World War I to make it happen.

The U.S. officially entered the war in April 1917 with no idea of the amount of resources it would need to fight the war.听By the end of November, it had an idea of the amount it would need: an incredibly huge amount.听Noting that the U.S. had no official estimates of national income, economist and member of the Federal Reserve Board (1914-1936) Adolph C. Miller constructed estimates of his own to determine the 鈥渟urplus over necessary consumption and maintenance of capital that could be devoted to the war effort.鈥澨齏hen the war ended, Miller鈥檚 estimates did, too.

The first federal government agency to estimate national income was the Federal Trade Commission (FTC).听FTC published national income and value added estimates for the years 1918-1923 in a 1926 report.听Congress refused to fund FTC research the following year.听

In 1932, the Senate passed a resolution assigning the Economic Research Division of the Department of Commerce with the task of estimating U.S. national income for the years 1929-1932.听The U.S. was three years into the Great Depression.听For lack of national income estimates, no one knew how far the economy had sunk.

Simon Kuznets, 鈥渙n loan鈥� from the private National Bureau of Economic Research, took charge of the project in January 1933.听Kuznets and his small team submitted their estimates to the Senate on January 4, 1934.听The estimates indicated that U.S. price-adjusted national income fell by 30 percent between 1929 and 1932.

Commerce began publishing national income estimates on a regular basis in 1935.听It shifted to publishing gross national product (GNP) estimates in 1942.听World War II prompted the shift.

As 1942 began, the U.S. faced two pressing questions.听Does the U.S. economy have the capacity to produce armaments in the amounts and in the time deemed necessary to win the war?听If so, at what cost to the civilian standard of living?听

The development of GNP enabled the U.S., Great Britain and Canada to answer those pressing questions with remarkable accuracy, which turned out to be crucial to the Allied victory.听We鈥檒l discuss that in Part 3.