[OPE-L:5734] Re: Question about NIPA

david jacob jurriaan bendien (Jbendien@globalxs.nl)
Mon, 17 Nov 1997 17:27:23 +0100

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I agree entirely with Fred Moseley's comments on Andrew Kliman's question
about NIPA, but the interesting issue is now whether, in a Marxian account
of the value product (added value), newly produced but uninstalled capital
goods should be regarded as part of the value of the annual social product.

It seems to me that they must be, since during any accounting period there
will be goods produced which are not "final consumer goods" but "producer
goods" not installed and used up in the current round of production.
If it is argued that such capital goods are not an "addition to wealth" in
the current round of production, is it possible to deduct the value of such
capital goods using NIPA data, i.e. is it possible to separate out those
capital goods produced in an accounting period but not installed during
that period ?
Without being familiar with NIPA methodology, I would imagine that this is
not possible from published statistical information. Would it then be
possible to estimate the quantity involved using information about gross
fixed capital formation and the value of outputs of those sectors producing
"Department I" goods (i.e. capital goods, i.e. plant and equipment etc.) ?

> From: Fred B. Moseley <fmoseley@mtholyoke.edu>
> To: andrew kliman <Andrew_Kliman@CLASSIC.MSN.COM>
> Cc: ope-l@galaxy.csuchico.edu
> Subject[OPE-L:5734] : Re: Question about NIPA
> Date: Monday, November 17, 1997 4:23 PM
> This is a response to Andrew's interesting question last Friday about
> "final goods" in the NIPAs.
> Andrew has put his finger on an important inconsistency
> in the conceptualization of the NIPAs. The NIPAs define
> "capital goods" as "final products", even though they
> clearly enter into the production of other goods, similar to
> raw materials or "intermediate goods". The justification
> for this treatment of "capital goods" as final goods is
> seldom discussed; it is simply asserted. One place where
> there is a one-sentence justification is in a Supplement to
> the 1954 Survey of Current Business entitled "The
> Conceptual Framework of National Income Statistics."
> This Supplement is still cited today as the most complete
> discussion of the conceptual framework of the NIPAs.
> There we find (on p. 38):
> Capital formation is clearly a part of the final
> product to the extent that is consists of items that are
> NOT USED UP, BUT ARE ADDED TO WEALTH. (Only the inclusion in
> gross national product of capital formation for replacement
> purposes must be noted as a limitation in this conception.)
> (emphasis added).
> Thus we see that the justification for including "capital
> goods" as final products is that they ARE NOT USED UP IN
> THE CURRENT PERIOD - even though they reenter
> production and are used up in subsequent periods
> (so Allin is right about this in his message a few minutes ago).
> The parenthetical sentence acknowledges the inconsistency,
> but this inconsistency is then simply ignored.
> I think that the way this inconsistency arose is that the
> measurment of national income and output began with
> the measurement of income - what we know today as the
> "income" or "value added" or "cost" approach (the sum of
> "factor incomes"). Then the "expenditure" approach was
> developed (the sum of C + I + G) and a measure was
> needed that would equal the sum of incomes. Since a
> part of profit was generally used to purchase "capital
> goods," these latter had to be included as "final goods."
> But unfortunately, only part of "capital goods" are
> purchased with profit. The rest of "capital goods" are
> puchased with depreciation. But since it made no sense
> to call capital goods purchased with profit "final goods"
> and other capital goods "intermediate goods", all capital
> goods were called "final goods". And depreciation was
> added to the "value added" total as a "non-factor cost" to make
> the two sides equal. This last adjustment is the key inconsistency,
> it seems to me. The inclusion of depreciation in "value added"
> violates the prohibition against "double counting", since this
> cost has already been counted, although in a previous period.
> Andrew, I hope this helps. How did this question come
> up for you?
> Comradely,
> Fred