Re: Is there a NIPA ideology? Response to Duncan

Duncan K. Foley (
Fri, 6 Feb 1998 22:34:16 -0500

A remark on Alan's Is there a NIPA ideology? Response to Duncan:

After quoting some from the handbook on national income accounting
procedures, Alan remarks:
>I think the concept is stated fairly unambiguously. GDP is obtained by
>adding up the incomes of the factors of production, and anything else is a
>transfer. The incomes are the measure of the contribution to GDP. In other
>places, particularly in the Input-output accounting framework, it is made
>even clearer.

But there are _two_ ways to measure GDP, one by taking "final sales" plus
"additions to inventory", the C + I + G + (X-M) method, and the other by
adding up the incomes of factors of production, giving GDP = Depreciation +
Indirect Business Taxes + Wages + Profit + Interest + Rent. Under the
double-entry accounting rules, these methods are in principle bound to come
up with the same number. Any change on one side of the accounts has to be
matched on the other. For example, if we want to define social security
payments as a payment for a service rendered, we would add the social
security payments to wages, and also add an imputed services rendered to
the output side of the accounts. Another example is the treatment of
commuting expenses, which are, in the U.S., counted as final goods, part of
consumption. But it would be possible to construct the accounts so that
commuting expenses were treated as an intermediary good, consumption
reduced by the amount of commuting expenses, and wages reduced by the same
amount on the ground that the commuting expenses were really a cost.


Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
fax: (212)-854-8947