INTRODUCTION TO NATIONAL
INCOME ACCOUNTING
How m a n y people if a s k e d to n a m e the
i m p o r t a n t inventions of r e c e n t d e c a d e s
would m e n t i o n as one of t h e m the s y s t e m of
national i n c o m e a c c o u n t i n g developed by the
National B u r e a u of E c o n o m i c R e s e a r c h and
the D e p a r t m e n t of C o m m e r c e ? P r o b a b l y not
many. S t i l l t h e r e is r e a s o n to b e l i e v e t h a t
national i n c o m e a c c o u n t i n g is one of t h e m .
P r i o r to the i n t r o d u c t i o n of n a t i o n a l
income a c c o u n t i n g , e c o n o m i s t s had v e r y
poor g a u g e s f o r a p p r a i s i n g the p e r f o r m a n c e
of the n a t i o n a l e c o n o m y . T h e f i g u r e s t h e y
w a t c h e d — c a r l o a d i n g s , bank l o a n s , i n t e r e s t
r a t e s , d e p a r t m e n t s t o r e s a l e s , and o t h e r
r a t h e r l i m i t e d i n d i c a t o r s — h a d not b e e n s e t
up as p a r t s of an i n t e g r a t e d whole- E a c h
gave a p i c t u r e , m o r e or l e s s a c c u r a t e , of
how only one p a r t of the e c o n o m y was p e r -
f o r m i n g . C o n s e q u e n t l y , e c o n o m i s t s did not
have at any m o m e n t in t i m e r e l i a b l e i n d i c a -
t o r s of how the e c o n o m y as a whole was
functioning. T o d a y that s i t u a t i o n h a s b e e n
changed, and the p r a c t i c a l u s e f u l n e s s of e c o -
n o m i c s h a s taken a long s t e p f o r w a r d . The
D e p a r t m e n t of C o m m e r c e now h a s a v a s t
amount of i n d u s t r i a l data v e r y w e l l i n t e -
grated.
T o u n d e r s t a n d r e p o r t s of the D e p a r t m e n t
of C o m m e r c e on the e c o n o m y ' s p e r f o r m a n c e ,
one m u s t u n d e r s t a n d how the D e p a r t m e n t of
C o m m e r c e m e a s u r e s that p e r f o r m a n c e and
how it h a s i n t e g r a t e d the m a n y a v a i l a b l e
s t a t i s t i c s on p e r f o r m a n c e . T h r o u g h a l l the
pages that follow, the r e a d e r should b e a r in
mind that the p r i m a r y goal of the g o v e r n m e n t
e c o n o m i s t s and t h e i r n a t i o n a l i n c o m e a c -
counting is to m e a s u r e and r e p o r t on what is
happening to the n a t i o n ' s output. As the n a -
tion i m p r o v e s its s c i e n c e , its o r g a n i z a t i o n ,
and its t o o l s , as its population and m a c h i n e s
i n c r e a s e , the e c o n o m i s t s want to r e p o r t
q u a n t i t a t i v e l y on what is happening to the n a -
t i o n ' s r e a l output. B e c a u s e we now have an
o v e r - a l l m e a s u r e of output it is p o s s i b l e , as
shown in the a c c o m p a n y i n g line c h a r t , to
p o r t r a y the changing t o t a l output of the n a t i o n .
While n a t i o n a l i n c o m e a c c o u n t i n g is an i n -
genious way of m e a s u r i n g the e c o n o m i c a c t i v -
ity of the United S t a t e s , it is not too p e r f e c t .
One should c o n s e q u e n t l y be c a r e f u l not to
attribute to g r o s s n a t i o n a l p r o d u c t f i g u r e s
more s i g n i f i c a n c e than t h e y p o s s e s s . They
m e a s u r e only a c t i v i t y , not n e c e s s a r i l y e c o -
nomic w e l f a r e as m a n y w r i t e r s i m p l y . Be-
c a u s e n a t i o n a l i n c o m e a c c o u n t i n g d e a l s only
with the flow of r e c e i p t s and e x p e n d i t u r e s of
the m a j o r spending g r o u p s and does not d e a l
c o n c u r r e n t l y with the changing a s s e t s and
l i a b i l i t i e s of t h e s e g r o u p s , it does not show
the s o c i a l c o s t — o f t e n the s e v e r e c o s t — i n
expanded debt and a l t e r e d p o l i t i c a l power
t h a t s o c i e t y often pays f o r m a i n t a i n i n g o r
lifting the l e v e l of g r o s s n a t i o n a l e x p e n d i -
tures.
National income accounting r e g a r d s all
e x p e n d i t u r e s m a d e f o r f i n a l goods and s e r v -
i c e s as r e f l e c t i o n s of a genuine m a r k e t d e -
mand. D o l l a r s s p e n t , f o r e x a m p l e , under
the f i x e d c e i l i n g - p r i c e c o n d i t i o n s of an O P A
and under the f i x e d f l o o r - p r i c e c o n d i t i o n s of
an NRA a r e r e g a r d e d as m e a s u r i n g an output
that i s j u s t a s genuine as that f o r which d o l -
l a r s a r e spent under f r e e m a r k e t c o n d i t i o n s .
Our e c o n o m y c o u l d , t h e r e f o r e , c o n c e i v a b l y
s h i f t f r o m its p r e s e n t r e l a t i v e l y f r e e p r i c e s
to the f i x e d p r i c e s of a c o m p l e t e c o m m u n i s t
o r s o c i a l i s t s t a t e without the g r o s s n a t i o n a l
e x p e n d i t u r e f i g u r e s d e p i c t i n g any of the
t r a n s i t i o n . Under s u c h a t r a n s i t i o n — a n d it
happened under H i t l e r ' s n a t i o n a l s o c i a l i s m —
g r o s s n a t i o n a l e x p e n d i t u r e s could, and p o s -
s i b l y would, continue upward. So it is not
n e c e s s a r i l y v a l i d to r e g a r d r i s i n g d o l l a r
f i g u r e s a s r e f l e c t i n g an e c o n o m i c i m p r o v e -
m e n t of the c o m m u n i t y . O b v i o u s l y we m u s t
c o n c u r r e n t l y w a t c h what is happening both to
the a s s e t s and l i a b i l i t i e s of the m a j o r s p e n d -
ing g r o u p s and to t h e i r p o l i t i c a l r i g h t s and
d u t i e s , p o w e r s and p r i v i l e g e s , l i b e r t i e s and
e x p o s u r e s . B u t so long as we v i e w j i a t i o n a l
i n c o m e a c c o u n t i n g in its p r o p e r s o c i o l o g i c a l
s e t t i n g , it is an i m p o r t a n t invention and a
s u p e r i o r gauge f o r m e a s u r i n g how the e c o n -
o m y is p e r f o r m i n g , f o r it is b a s e d on a v e r y
r e a l i s t i c c o n c e p t i o n of how our big i n d u s t r i a l
machine works.
B e c a u s e n a t i o n a l i n c o m e a c c o u n t i n g is of
f a r - r e a c h i n g i m p o r t a n c e , b e c a u s e it is s t a -
t i s t i c a l b y n a t u r e , and b e c a u s e it i n v o l v e s a
b r o a d c o v e r a g e of both e c o n o m i c t h e o r y and
d a t a , the w r i t e r c o n c l u d e d t h a t t h e r e was a
need for a booklet e s p e c i a l l y designed for
t h o s e people who want an u n d e r s t a n d i n g of the
l o g i c behind the n a t i o n a l i n c o m e f i g u r e s but
not n e c e s s a r i l y a r e v i e w of the s t a t i s t i c a l
c o n c e r n s involved in a r r i v i n g at the f i g u r e s .
T h e t e r m s and c o n c e p t s u s e d in n a t i o n a l
i n c o m e r e p o r t i n g have now b e e n adopted by
 the Council of Economic A d v i s e r s as the o f - accounting is no longer the exclusive con-
f i c i a l language f o r describing the i n t e r r e l a - c e r n of statisticians but also the understand-
tionships and the p e r f o r m a n c e of the nation's able concern of students, operating men of
economy. Consequently, national income business> and all responsible citizens.

• Growth has averaged about

3 percent per year CHART I

400

The National Output

300 - In Constant (1947) Dolla

200 GROSS NATIONAL PRODUCT

60 < '' 'I ' '' '1 ''t ' ''''1 1 '' '' '' I '' 'I' ' '' III I I
1910 15 20 25 30 35 40 45 50 55

Source: U. S. D e p a r t m e n t of C o m m e r c e

vi