Timothy Taylor — Why Did Simon Kuznets Want to Leave Military Spending out of GDP?

Simon Kuznets (Nobel 1971) usually gets the credit for doing as much as anyone to organize our modern thinking about what should be included in GDP, or left out. But I had not known that Kuznets apparently argued for leaving military spending out of GDP, on the grounds that it wasn't actually "consumed" by anyone, but should instead be treated as an intermediate input that supported production and consumption. Here's how Hugh Rockoff tells the story in his essay, "On the Controversies behind the Origins of the Federal Economic Statistics," in the Winter 2019 issue of the Journal of Economic Perspectives. [Full disclosure: I work at JEP as Managing Editor.]...

Conversable Economist
Why Did Simon Kuznets Want to Leave Military Spending out of GDP?
Timothy Taylor | Managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul, Minnesota

Eli Cook — The Pricing of Progress and the Origins of GDP

The key element that distinguishes capitalist societies from previous forms of social organization is not the existence of markets or money but rather capital investment, the act through which basic elements of society and life—including natural resources, technological discoveries, cultural productions, urban spaces, educational institutions, human beings, and the nation-state—are transformed (or “capitalized”) into income-generating assets valued and allocated in accordance with their capacity to make money and yield profitable returns.

In my book, I argue that economic indicators and the pricing of progress emerged out of such acts of capital investment as capitalist forms of quantification and valuation used to manage or invest in railroad corporations, textile factories, real estate holdings, or slave plantations slowly but surely escaped the narrow confines of the business world and seeped into nearly every nook and cranny of American society. As a burgeoning “investmentality” led American businessmen and policy makers to quantify not only their portfolio but their nation as a for-profit investment, the progress of its inhabitants, free or enslaved, came to be valued according to their moneymaking abilities. 

Follow the capital, therefore, and you will find the origins of GDP and our current obsession with monetized metrics...

To conclude, by the time GDP was finally invented during the Great Depression, Americans already had much experience with the notion that one could measure social success by calculating the income-bearing capacities of the nation. The rise of GDP, therefore, is not the opening scene in the rise of modern economic indicators, but rather the final act of a global story that began not in twentieth century economic departments, government bureaucracies or think tanks but rather with the enclosure of English lands, the enslavement of African bodies and the capitalization of American life in the seventeenth, eighteenth and nineteenth centuries.

Capitalism is not about markets. It is about economies based on capital investment. Capital investment did not become a major factor until the development of technology made industry possible.

Previously capital investment was in land and labor under feudal conditions, and ships involved in international trade under mercantilist conditions.

The development of machinery and the subsequent development of finance ushered in industrial capital as the dominant economic force.

Economic growth came to be viewed chiefly in terms of capital formation and accumulation rather than agricultural production, resource extraction, and trade.

Economic Sociology and Political Economy
The Pricing of Progress and the Origins of GDP

Eli Cook | Assistant Professor of History at the University of Haifa

Matias Vernengo — A brief and dispassionate note on 'GDP'

Short summary of GDP (and NIPA) as the basis of macro.

Naked Keynesianism
A brief and dispassionate note on 'GDP'
Matias Vernengo | Associate Professor of Economics, Bucknell University

Ryan Grim — Thomas Piketty Explains Why It Took Until Now For An Economist To Expose The Flaw In Capitalism

Cold War self-censorship prevented mainstream economists from diagnosing adequately the fundamental flaw in capitalism, Thomas Piketty said in an interview with The Huffington Post. 

Piketty's best-selling book, Capital in the Twenty-First Century, was recently translated from French to English and has upended the global discussion on capitalism and inequality. Piketty relies on the most expansive income and wealth datasets ever compiled to identify a striking trend over more than 200 years: returns on capital grow faster than the regular economy, meaning that without some policy intervention, the rich get richer, and richer, and richer.

Piketty said that he is unsure if he would have had the courage to write his book during the heat of the Cold War. "I don't know what I would have done. I'm lucky enough to belong to a generation, and maybe to the first generation, that didn't have to make that kind of choice, because the Soviet Union was gone," he said.

Piketty's dataset is an expansion of one put together by a leading 20th century economist, Simon Kuznets, famous for what's known as the Kuznets curve -- a chart suggesting that as capitalist economies reach a certain undefined stage of development, inequality begins falling after sharply rising. Yet the Kuznets curve was used for half a century to argue that capitalism has a natural tendency to reduce inequality in advanced economies, despite a lack of evidence.

"During the Cold War period, people really wanted to believe in the stories about inequality and capitalism," Piketty said. "For instance, Kuznets' evidence in the 1950s and 1960s ... he did not believe that the reduction in inequality that he found between 1910 to 1950 was a natural process. He was very well aware, if you read his book, that the World War, the Great Depression, and the policies that were implemented after these shocks -- progressive taxation and other policies -- played a very important role. But everybody wanted to believe in a sort of natural process that would naturally lead to a decline in inequality in advanced stages of development, because in the Cold War context the fight between capitalism and communism was so great."

 In other words, political propaganda.

The Huffington Post
Thomas Piketty Explains Why It Took Until Now For An Economist To Expose The Flaw In Capitalism
Ryan Grim