SOME PROBLEMS IN THE MEASUREMENT OF REAL NATIONAL INCOME
By J. L. Nicholson
(Chief Statisticion, United Kinrdorn Cer~trol Sfatistical Oflcc)
The Truth is one and incapable of contradiction; All knowledge that conflicts with itself is Poetic Fiction. -W. H. Auden. I. THE GENERAL SElTING
BEFORE discussing problems of method, one ought to be clear about aims. One is hardly in a position to taclcle the numerous and various problems that are peculiar to the measurement of real national income until one knows the purposes for which the results are intended to be used. This is the kind of proposition with which few people would disagree but which, as Oscar Wilde said about someone's face, once seen never remembered. Since estimates of real national income may have several possible objects, one should not expect to find perfectly general solutions to many of the problems. The correct, or most appropriate, solution for one purpose may often differ from the correct, or most appropriate, solution for some other purpose. There would be general agreement that the particular purpose of the estimates may affect the choice of weights, as well as the definition of what is included within the boundaries of economic activity. But it may also influence the best method of making use of the available data; and one should even bear in mind the possibility that, in certain cases, it may affect the choice of indicators. The purposes of estimates of the real national income or product seem to fall into two main categories. Such estimates may be needed in connection with (a) problenls concerned with the potential or actual welfare or satisfaction derived by consumers and purchasers of final products; or (b) problems of productivity, and the effective utilization of resources, the emphasis in this case being on the producer, not the consumer. It must be admitted that the usefulness of estimates of the 145
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real natiollal income, in either connection, is very limited. They do not, certainly not without modification, and perhaps cannot provide general quantitative measures either of economic welfare, or of total output in the productivity sense. The estimates usually correspond with, or derive from, some generally accepted definition of the national income, which in turn implies a definition of economic activity. Not all economic activities need contribute, while many activities that are not regarded as economic can contribute, to total production or economic welfare. According to the spec& or general purposes in mind, the concepts of productivity and welfare can also be defined in different ways. But the real national product does at least provide a starting point froin which a measure, or iudex, of one kind or the other may be derived; and can itself, therefore, be given a flavour - to put it no higher - either of productivity or of welfare. So much would, perhaps, he fairly widely admitted. But the practical implications of this dichotomy need to be considered rather carefully. And we must be prepared for some seemingly paradoxical results. It is worth, first, briefly reconsidering the ratio~zale national of income aggregation. In order to obtain an aggregate of all the goods and services which together comprise the total national product, each item must he valued at a certain price, which begging a few questions for the moment - is the price at which it changes hands. Some common unit of measurement is obviously necessary. But what is the justification of valuing each item at this particular price? We would naturally use these prices if we merely wanted to describe the actual exchanges taking place at a particular time, or to study the interrelationships of different parts of the economic system. But there must be more to it than this. What is it that the exchange price is intended to measure? From the point of view of the consumer the answer must, I think, be that the distribution of his expenditure...
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