Data Liberation Initiative

A historical perspective on the national accounts

Gylliane Gervais

March 2009

Forefathers – Thinkers

Mercantilists (16th-17th century)• Theory of value

– Commerce is the driving force of the economy– National wealth is reflected through accumulated gold and silver

• Emergence of Nation-State, creation of colonies– Protectionism (colonies must buy from the metropolis)– Monopolies (chartered companies, i.e. Hudson’s Bay, 1673)

Physiocrats (18th cent.) • Theory of value

– Only agriculture creates a net product• Best known, François Quesnay

– Tableau économique des physiocrates, 1758– Illustration of circular flow of the economy– First input-output table

Forefathers – Thinkers

Classical economy (18th and 19th cent.) • Adam Smith

– Research on the nature and causes of the wealth of nations, 1776• Say, Malthus, Mill, Malthus, Ricardo…

– Golden age of ‘laisser faire’– Apology of private property, free competition, State with limited role

• Theory of value – Wealth does not come solely from agriculture– Without value : services, activities of the State, economic rent

• Income and short term growth of little interest, because the State cannot, nor should, have a role

Forefathers – Practitioners

Florentine bankers • Double-entry bookkeeping, 15th cent.

The tax collectors (most of them!)

William Petty (1623-1687) • 1st estimate of national income and national wealth of England,

1660 (1664, published in 1691) • Political Arithmetic (1676, published in 1690)

“Where a people thrive, there the income is greater than the expense”

Forefathers – Practitioners

Gregory King (1648-1712)• First economist statistician, continued Petty’s work and

estimated population and national wealth for 1690 in:

Natural and Political Observations and Conclusions upon the State and Condition of England (1696)

• Of the naval Trade of England, 1688, and the National Profit then Arising thereby (1697)

– First statistical compendium (national wealth, commerce, navigation, customs, money, buildings and land, 1600 to 1688)

– First long time series and first projections

From the 1st World War to the Depression

• Scientific progress, based on empirical observation, raises interest in statistics

• Projecting income taxes is not enough anymore, the aim is to estimate the resources countries can bring to bear on war

• Beginning of globalization of national accounts

United Kingdom• Bowley (1861-1957) and / or Stamp (1881-1941)

– The Division of the Product of Industry, 1919 – The Wealth and Income of the Chief Powers, 1919– Methods Used in Different Countries for Estimating National Income,

1934– The National Income, 1924

From the 1st World War to the Depression

United States

• W. King estimates national income, using ‘production approach’– The Wealth and Income of the People of the United States, 1915

• National Bureau of Economic Research (NBER), created in 1920 – Mandate: quantitative and scientific analysis of the economy – First director: Wesley Mitchell (Business Cycles, 1913)– National income, 1st estimate by ‘income approach’, 1922

(Income received by individuals, businesses and the State)

Income in the United States: Its Amount and Distribution, 1909-1919

From the 1st World War to the DepressionCanada• Census of Manufacturing, 1895, 1906, 1911, annual 1917-• R. H. Coats, Dominion Statistician, July 1 1915

– Revised Stamp’s estimates in 1916 (published until 1930)The Wealth of Canada and Other Nations, 1919

• Creation of the Dominion Bureau of Statistics (DBS) in 1918• Survey of Production in Canada, 1923

– First estimate of national income covering production of goods and services (by the ‘production approach’)

– Distinction between ‘gross’ and ‘net’ production (i.e. ‘product’)

• Monthly Index of Physical Volume of Business, January 1926- – Seasonally adjusted! Forerunner of monthly GDP by industry – Published in Monthly Review of Economic Statistics

From Depression to 2nd World War: take-off

Different preoccupations• By how much did income fall since 1929? • How to avoid another depression?• How to finance the war effort?• What is best policy to ensure stable growth, etc.

ThinkersKeynes • How to Pay for the War… (1940) • General Theory of Employment, Interest and Money, 1936, demands

better estimates of national income and national expenditure• Product (Y) = C + G + I +X – M

Tinbergen, Frisch, Myrdal• Develop econometrics and models of the economy as a circular flow

From Depression to 2nd World War: take-off

United Kingdom

Colin Clark (1905-1989). We owe him: • The term GNP (and GDP?)• Conceptualisation and presentation of present-day tables

– GDP ‘income’ and ‘expenditure’, income and outlay accounts• National Income, 1924-1931 (1932)• National Income and Outlay (1938)

Richard Stone (1913-1989); replaces Clark in 1937• First estimate of modern-day GNP with James Meade National Income, Saving and Consumption, 1941, still annex UK budget • National Income and Expenditure, 1944 (Stone and Meade) • Author of SNA'53, SNA'68 and draft of SNA'93

From Depression to 2nd World War: take-off

United StatesKuznets (1901-1985) joins NBER in 1926• 1932, Senate asks NBER to estimate national income by ‘income approach’,

1929-1932 results released in 1934• Article on national income in International Encyclopedia of the Social

Sciences circa 1930• National income and its composition, 1919-1938, NBER, 1941 (1st ed., 1934)• Works 20 years on building and standardising national accounts

Leontief (1905-1999) joins NBER in 1931, Harvard in 1932 • Inspired by Quesnay’s table (1758)• First Input-Output (I=-O) tables (41 industries x 41 industries)• Structure of the American Economy, 1919-1929, 1941• I-O tables forbidden in the US in the '50s, every 5 years nowadays

From Depression to 2nd World War: take-off

United States• 1939, creation of National Income Division (NID) at the

Department of Commerce (forerunner of BEA) – Continues Kuznets’ work– Publishes monthly estimates of income as early as 1939– Begins estimates of expenditure in 1942

• 1943, national income by the 2 approaches:– ‘Final products method’ (expenditure)– ‘Method of distributive shares’ (income)– To this day, terminology different from Canada’s

• ‘NIPA’ versus ‘Income and Expenditure’ (IEA)

From Depression to 2nd World War: take-off

Canada• DBS, The National Income of Canada, 1919-1938 (1934, 1941)

– ‘Production approach’• Royal Commission on Dominion-Provincial Relations (Rowell-Sirois

Commission), created in 1937– Revise DBS figures to arrive at “summary of income produced, by

provinces and by industries, and by income paid out, by provinces”– In collaboration with DBS, estimates for 1934-1939– ‘Income approach’

• 1942, DBS mandated to develop the accounts, but in fact work continues at Bank of Canada (Luxton and Chapman)

• 1944, creation of Research and Development Staff at DBS– George Luxton, director, Agatha Chapman, his assistant

Modern national accounts, 1940-

Sept. ‘44, Tripartite Discussions on National Income Measurement

• In Washington; UK: Stone, US: Gilbert, and Canada: Luxton• First attempt at standardisation

April-June ‘45, San Francisco Conference creating U.N.• The UN’s Economic and Social Council (ECOSOC) creates the Statistical

Commission• In Dec. 1945, the Statistical Commission calls the Princeton Conference

on national accounts, under Stone’s chairmanship– US, UK, Australia, Switzerland, Norway, Mexico, Netherlands, Canada– Claude Isbister and Agatha Chapman represent Canada

• First attempt at international standardisation

Modern national accounts, 1940-• Under the auspices of the UN

– SNA'53 – SNA'68

• Under the auspices of the UN, IMF, World Bank, OECD and European Communities

– SNA'93• European System of Accounts (ESA’95), European Communities

– NB: it is a law• Socialist countries develop the Material Product system (MPS),

circa 1930– Abandoned gradually beginning in 1990 – Still used in some countries

• ex. Algeria, where GDP(MPS) = 85-90% of standard GDP

Modern national accounts in Canada

January 1945, death of Luxton at the age of 31 • Anyone that counts in Ottawa attends the funeral (Clark, Bryce,

Sharp, Deutsch, Cudmore, Budge Crawley and Hazen Sise, friend of Bethune…)

• Claude Isbister becomes director of Research and Dev. Staff • Agatha Chapman in charge of developing the accounts

August 1945, federal-provincial conference– Leads to creation of equalization payments– Isbister and Chapman present GNP estimates, in terms of income and

expenditure, 1938-1944, and income and outlay accounts by province– GNP and income and outlay accounts readily accepted and become

foundation for calculation of equalization payments– Still enter calculation of equalization payments and, since 1997, the HST

Agatha Chapman and the Gouzenko affair• In September 1945, Gouzenko defects and is secretly detained• In February 1946, affair erupts; a Royal Commission of enquiry is created…

… to investigate the facts relating to and the circumstances surrounding the communication, by public officials and other persons in positions of trust, of secret and confidential information to agents of a foreign power

• On the 15th, 13 people are arrested and incarcerated, of whom 2 friends of Chapman

• In March, Chapman testifies before the Commission• In June, she is identified as a ‘spy’ by the Commission; on leave with pay• In August, she demands to be put on trial• In November, the trial is interrupted after a day, and accusations withdrawn• Nevertheless, she looses her job and is ostracised• Richard Stone hires her at Cambridge and she leaves Canada in March 1947• She comes back to Canada in the fifties, and commits suicide in 1958• Duncan McDowall dedicates his book to her and Luxton “The Sum of the Satisfactions - Canada in the Age of National Accounting”,

McGill-Queen’s, University Press, 2008

Main stages of development in Canada • National income, 1934-1939 (Rowell-Sirois Commission) 1941• Annual balance of payments, 1926- 1939• Annual GDP and IEA, 1926- 1952• Quarterly GDP, 1947- 1953• Quarterly balance of payments, 1946- 1953• First square input-output (I-O) tables, 1949 1956• Development of rectangular I-O tables

Matuszewski (Laval, BSQ), Gigantes (DBS), and Levitt (McGill) 1960s

• Annual rectangular I-O tables, 1961- 1969• Quarterly financial accounts, 1962- 1969• Monthly GDP by industry, constant $ (quarterly ’63-’70) 1970• Annual national balance sheet, 1961- 1977• Provincial GDP, ‘rev. and exp.’, current $, without X and M, 1961- 1977• Provincial GDP, ‘production’ (by industry), constant $ 1987 • Provincial GDP, 3 methods, current and const. $, with X and M, 1981- 1995• Annual provincial I-O tables 2000• Quarterly national balance sheet, 1990- 2004

SNA and Nobel prizes for economics

Year Recipient (s) Contribution

1969 TinbergIn and Frisch Econometrics and national accounts

1970 Samuelson Macroeconomics

1971 Kuznets National accounts

1972 Hicks and Arrow Welfare theory and national accounts

1973 Leontief National accounts

1974 Von Hayek and Myrdal Macroeconomics and national accounts

1976 Ohlin and Meade Macroeconomics and national accounts

1980 Klein Econometrics

1984 Stone National accounts

1998 Sen Welfare theory

2003 Engle and Granger Economic projections

2004 Kydland and Prescott Business cycle