The Power of the Single Number: A Political History of GDP Public Lecture Department of International Development, LSE April 28, 2015 Philipp Lepenies, Freie Universität Berlin #LSEGDPHistory

GDP as Phenomenon Most powerful statistical indicator in history part of our political culture recently: attempts to „dethrone“ GDP sits firmly in the saddle absence of historical dimension Why and how did GDP become the world‘s most powerful number?

What is GDP? GDP is Political Arithmetic

History of GDP – what to explain? National Income versus National Product (Gross National or Gross Domestic Product) focus on production from account to single number growth more than economic statistics

The History of GDP Is a tale of… – two countries: Britain and USA – three men: William Petty, Colin Clark and Simon Kuznets – tragedy: none of them succeeded – triumph: of J. M. Keynes – transnational historiography (Germany) – the role of Growth

Structure 1.Britain 2.USA 3.Germany 4.Growth

Great Britain (England)

William Petty (1623 – 1687) Political Arithmetick „the method is not very usual, for instead of using words, I express myself in terms of number, weight, or measure and consider only such causes that have visible foundations in nature“ science explains „the perplexed and intricate ways of the world“ “The glory of the prince, and the happiness and greatness of the people” - goal of government: peace and plenty

The First National Account Men, Women, and Children, in England and Wales, about six Millions, whose Expence for Food, Housing, Cloaths, and all other necessaries, amount to 40 Millions, per Annum. If the Annual proceed of the Stock, or Wealth of the Nation, yields but 15 millions, and the expence be 40. Then the labour of the People must furnish the other 25.

Legacy interest in „National Income“ – only academically discovery of „labour“ as economic value political arithmetic becomes „Statistik“ problematic: combination and interpretation

Colin Clark (1905 – 1989) chemist „inventor“ of GNP and National Income member of Papal Commission on Birth Control

The National Income 1932 Three ways of calculation: consumption, production and distribution Per capita income measure of progress Estimates macroeconomic aggregates numbers before theory National income as historical category

Conditions of Economic Progress 1940 international comparison sectoral development: 1. Agriculture 2. Industry 3. Services development economics new picture of the world

After Clark

The Keynesian System System of National Accounts following requirements and logic of the Keynesian Theory Focus on Income (tax base) – not production No single number Positive and important role of the state taken up by the govt – but very late No planning No longer only historical number (quarterly)

The U.S.A.

Simon Kuznets ( ) „exemplar empiricist of the century“ empirical study before theory

Definition of National Income 1932 start by end of all economic activity provision of goods and services moment individuals receive their income closely linked to distribution people-centred, welfarist approach extremely cautious

Birth of GNP Victory Program 1942

Keynes visit to US 1941

Result focus on single-number: Gross National Product (GNP) production-focus - politics of productivity based on adapted System of National Accounts Political Arithmetic – Dept. Of Commerce Taken up by political rhetoric

Production

Kuznets 1945 income more important than production means to an end goal of economic activity? market-based economy role of state – harmony of accounts critical

Germany

United States Strategic Bombing Survey

Marshallplan and Modernization production-focus Hoffmann: „You can become like us, this was the message of the Marshallplan“ idea of „catching-up“

Growth

Traditional View Stagnation or Maturity

a cognitive change 1945/1946

1946 and beyond Employment Act Council of Economic Advisors Truman Doctrine: economic progress 1949 Point Four – geopolitical policy Race of Systems - CIA calculation of Soviet GNP Unique improvement of material living conditions

Growth: Sign of New Times Erhard 1957 / Galbraith 1958

Lessons learnt GDP only one way to explain „the intricate ways of the world“ defenders of GDP: conscious of the historic context in which GNP/GDP emerged advocates of alternative measures: conscious of what it took GDP to triumph – and what it might take to establish an alternative political arithmetic

Thank you!