[OPE-L] A class dimension of aggregate demand

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Tue Dec 06 2005 - 12:16:54 EST

Rakesh asked:

Do not GNP accounting methods have the unintended effect of exaggerating the
importance of the consumption and production of consumer goods in modern
economies? The neo Austrian economist Mark Skousen  has written:
"(...) How does one explain this discrepancy, which shows consumer spending
to be four times larger than capital expenditures? "What is happening is
that the gross private investment figures in GNP is not really a gross
number after all. It is actually a net measure and purposely excludes
'intermediate goods' that are purchased to be used as
inputs in producing other goods and services. It is a strictly value added
figure..." Mark Skousen, The
Structure of Production, p. 190

That's correct. Although this point has escaped theoretical scrutiny from
most Marxists, the product account in the NIPAs and UNSNA is structured
completely around a *theoretical* concept of value added, otherwise known as
net output. Although neoclassical economics swears by prices and rejects
value theory, the national accounts data on which it relies nevertheless
computes a "value" of (new) production based on real and fictitious prices,
and a grossing and netting procedure in which a value theory is embedded.
Many Marxists have tried to infer prices from values, but neoclassical
economics tries to infer values from prices, that's an inverse
"transformation problem" whereby we move from real prices to theoretical
prices thought to measure a true "value" (I haven't yet written this up in
an article, but it's worth doing, to dispell a few common misconceptions).

GDP is in fact a measure of total value added, equal to the total gross
incomes thought to be generated by activities classified as production. To
obtain that measure, intermediate goods and services used up in production
(operating expenses) are deducted from Gross Output (roughly, the total
value of sales). However, in the NIPA's, gross output and intermediate goods
are not separately tabulated, at least not online (in contrast to UNSNA). In
turn, the measurement of Gross Output relies on a definition of what is
"production" and consequently the incomes related to production.

This definition becomes crucial with respect to property incomes (including
rents, interest and capital gains) as well as the boundaries drawn for gross
fixed capital formation and intermediate consumption. I've discussed all
this in a simple way in my wikipedia articles on Gross Output, Net output,
Intermediate consumption, Compensation of Employees, Gross fixed capital
formation, Capital formation, Double counting, Productive and unproductive
labour, Unequal exchange etc.

The 1990s saw an explosive growth of property incomes, but this growth is
not directly reflected in the product account, precisely because property
income is excluded in the calculation of value added (because it is
considered to be unrelated to production), affecting rent and interest
income in particular. In many countries, realised capital gains are not
taxed, and therefore there is no data on them either. Consequently, GDP
figures provide an increasingly distorted view of economic activity,
underestimating true national income. In addition, globalisation means that
foreign trade as a fraction of GDP increases, and if imported goods are
resold locally at inflated prices, a whole lot of "value added" appears out
of nowhere.

In reality, only about a quarter of the total value of US imported goods
consists of ordinary consumer goods, the rest are intermediate and fixed
capital goods, military and luxury goods.

In Austrian economics, prices are just subjective, but Austrian economists
are not at all "subjective" about their own bank accounts, they want their
money to be there, regardless of any "subjective" preference by anybody
else. Markets of course will work fine, even if the theories about markets
by economists happen to be false. Obviously, for economic exchange to occur,
it is not necessary that parties to the trade know the true value of what
they are trading.

In this sense, there's still plenty of work for critics of political
economy, insofar as they are interested in 21 century categories rather than
19th century categories.


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