The gross domestic product (GDP) is the most often used indicator of economic activity. At the end of the 18th century, the first basic concept of GDP was developed. The contemporary notion was devised by American economist Simon Kuznets in 1934 and recognized as the primary indicator of a country’s economy at the 1944 Bretton Woods Conference.
Where did the concept of GDP originate?
During the struggle between the Dutch and the English between 1654 and 1676, William Petty devised the core concept of GDP to combat unfair taxes by landlords. In 1695, Charles Davenant improved the approach. Simon Kuznets established the contemporary idea of GDP for a 1934 US Congress report, warning against its use as a welfare indicator (see below under limitations and criticisms). GDP became the principal method for gauging a country’s economy after the Bretton Woods conference in 1944. GNP, which differed from GDP in that it counted production by a country’s population at home and abroad rather than its’resident institutional units,’ was the preferred estimate at the time (see OECD definition above). The United States was one of the last countries to transition from GNP to GDP, doing so in 1991. The importance of GDP measures during World War II was critical in gaining political acceptance of GDP figures as indices of national development and advancement. The US Department of Commerce, under Milton Gilbert’s leadership, played a critical role in embedding Kuznets’ ideas into institutions.
The evolution of the concept of GDP should be distinguished from the evolution of various methods for calculating it. Firms’ value added is generally simple to quantify from their accounts, but the value generated by the government, financial industries, and intangible asset creation is more complicated. These activities are becoming more important in industrialized economies, and international norms governing their measurement and inclusion or exclusion in GDP are constantly changing to keep up with technological advancements. “The real number for GDP is, then, the outcome of a large patchwork of statistics and a complicated series of processes carried out on the raw data to conform them to the conceptual framework,” says one academic economist.
When China formally adopted GDP as its economic success measure in 1993, it became truly global. China has previously depended on a national accounting system influenced by Marxism.
What are Simon Kuznets’ thoughts on GDP?
Even Simon Kuznets, the Belarusian economist who essentially established GDP, had reservations about it. He objected to the notion that arms and financial speculation were classified as positive outcomes. Above all, he stressed that GDP should not be mistaken with happiness. Kuznets’ warning has gone unheeded. GDP, or gross domestic product, has become the king of numbers. The politician who claims he’ll forgo development for something else, whether it’s cleaner air, better health care, or free pizza, is doomed.
It’s not all terrible news, either. Because GDP has a difficult time capturing innovation, it may undervalue various parts of our lives. A 19th-century billionaire would have sacrificed half his money for a course of antibiotics that could have saved his life. Antibiotics now cost pennies and make a negligible contribution to our measured economy. Wikipedia, which makes human knowledge accessible to almost everyone, contributes nothing to GDP.
That means we’ll have to come up with new techniques to measure our progress. For the most part, we’ve been enamored with a single metric that provides only a small amount of data.
Former French President Nicolas Sarkozy commissioned a group, led by Nobel economist Joseph Stiglitz, to investigate this issue a decade ago. It found that we were “mismeasuring our lives,” as the headline of its report put it.
Sarkozy stated in the prologue that the disconnect between reported happiness and people’s actual experiences was creating a “gulf of incomprehension between the expert certain of his knowledge and the citizen whose experience of life is entirely out of sync with the story provided by the data.” That chasm, he added, is “dangerous because citizens end up believing they are being tricked,” in words that capture the rage that is ripping so many nations apart right now. Nothing is more anti-democratic than that.”
Did Simon Kuznets invent Gross Domestic Product?
GDP’s beginnings Economic measurements were rare, and GDP the standard by which we value our economy today had not yet been invented. Simon Kuznets, please. He devised a standard way of quantifying the US gross national product, or GNP, as a statistician, mathematician, and economist.
Who has the highest GDP in the world?
Rankings of Nominal GDP by Country According to the International Monetary Fund, the following countries have the greatest nominal GDP in the world: United States of America (GDP: 20.49 trillion) China is a country that has a (GDP: 13.4 trillion) Japan is a country in Asia (GDP: 4.97 trillion)
Was GDP invented by Adam Smith?
Smith is also credited with coining the term “gross domestic product” (GDP) and developing a theory to compensate for pay disparities. 2 According to this notion, dangerous or unappealing jobs pay greater wages in order to attract workers to them.
In India, who is the father of the economy?
Former Prime Minister PV Narasimha Rao was a “wonderful son of the land” who “really may be dubbed the father of economic changes in India” because he had both the vision and the fortitude to drive them ahead, according to Manmohan Singh, who served in his administration as finance minister.
Dr Singh, speaking at the start of the Congress’s Telangana unit’s year-long celebrations of the late Prime Minister’s birth centennial, said he is particularly pleased that the event coincides with the presentation of Mr Rao’s government’s maiden budget in 1991.
Many people credit the 1991 budget with laying the foundations for a modern India and providing a plan for implementing economic changes in the country.
Dr Singh said the 1991 budget, which he dedicated to the memory of Rajiv Gandhi as Finance Minister in the Narasimha Rao cabinet, altered India in many ways as it brought in economic reforms and liberalisation.
“It was a difficult decision and a daring move,” Dr Singh, a former Prime Minister, said online. “It was feasible because Prime Minister Narasimha Rao gave me the leeway to roll out things once he fully comprehended what was ailing India’s economy at the time.”
“On this day, as we begin the centennial celebrations of his birth, I offer my modest respects to the man who had the vision and bravery to pursue these reforms,” the Congress leader said, adding that Mr Rao, like former Prime Minister Rajiv Gandhi, was concerned about the country’s poor.
In many ways, Dr. Singh described PV Narasimha Rao as a “friend, philosopher, and guide.”
In 1991, India was faced with a foreign exchange crisis, and with foreign exchange reserves down to around two weeks’ imports, the country was on the verge of collapse, he added.
“But, politically, it was a significant question whether one could make difficult decisions in order to deal with the difficult situation. It was a minority government in a fragile position, reliant on outside help for stability. Narasimha Rao ji, on the other hand, was able to carry everyone along with him, persuading them with his conviction. I went about my business, enjoying his trust, to carry out his vision “Dr. Singh explained.
Dr Singh quoted Victor Hugo, a French poet and novelist, who famously said, “No force on earth can halt an idea whose time has come.” One of these ideas, he claimed, was India’s development as a significant economic power.
“There was a long trip ahead, but it was time to let the rest of the world know that India was fully awake. After that, the rest is history. Looking back, Narasimha Rao can rightfully be referred to as India’s “Father of Economic Reforms.” “According to the former Prime Minister.
Dr Singh also recounted Mr Rao’s political path, which began during the independence fight.
PV Narasimha Rao was an important member of the Congress who worked closely with late Indira Gandhi and Rajiv Gandhi, he added, and held crucial positions of human resource development and external affairs as a Union cabinet minister.
What caused recessions and depressions, according to Keynes?
If you had to choose only one economist to help you comprehend the difficulties facing the economy, John Maynard Keynes would undoubtedly be that economist. Despite the fact that Keynes died over half a century ago, his diagnosis of recessions and depressions remains the bedrock of modern macroeconomics. His observations go a long way toward explaining the problems we’re dealing with right now.
Insufficient aggregate demand, according to Keynes, is the primary cause of economic downturns. Businesses across the economy see a drop in sales when total demand for goods and services falls. Firms are forced to reduce production and lay off people as a result of lower sales. Demand is further depressed by rising unemployment and falling profitability, resulting in a negative feedback loop with a very sad outcome.
Only when some event or policy stimulates aggregate demand, according to Keynesian theory, does the situation reverse. The issue currently is that it’s difficult to predict where that demand will come from.
Consumption, investment, net exports, and government purchases are the four conventional components of the economy’s output of goods and services. Any increase in demand must originate from one of these four sources. However, powerful pressures are at work in each situation to keep spending low.
In India, who calculates GDP?
To collect and compile the data needed to calculate the GDP and other statistics, the Central Statistics Office collaborates with numerous federal and state government agencies and departments. The Price Monitoring Cell at the Ministry of Consumer Affairs, for example, collects and calibrates data points pertaining to manufacturing, crop yields, and commodities, which are used to calculate the Wholesale Price Index (WPI) and the Consumer Price Index (CPI).
What was the purpose of GDP?
The gross domestic product (GDP) is a metric for measuring a country’s economic output. Countries with higher GDPs generate more goods and services and, as a result, enjoy a higher standard of living. As a result, many individuals and political leaders regard GDP growth as a key indicator of national success, using the terms “economic growth” and “GDP growth” interchangeably. Many economists, however, contend that GDP should not be used as a proxy for overall economic performance, much less the success of a society in general, due to many constraints.
What was the standard before GDP?
Unlike our sister site FRED’s cleanly presented graphics, FRASER’s statistical data sets take a little more time and effort to find and use. Furthermore, today’s economic metrics and concepts (what FRED refers to as “headline figures”) are largely new inventions. As a result, comprehending economic history frequently necessitates first comprehending the history of available economic data.
The most well-known economic dataset (an example) “Gross domestic product, or GDP, is an economic statistic that aims to estimate the value of a country’s economy. GDP arose from a series of attempts to quantify the US economy in the twentieth century. You may read many histories of GDP and related metrics authored by economists, historians, and journalists by conducting a quick online search, but you can also trace much of the history of national economic data right here on FRASER.
There was no standardized way to estimate the strength of the overall economy like GDP does now up until and through much of the Great Depression. Industrial output statistics, stock counts, and even freight transportation data were used by economists and politicians to get a picture of the country’s economic health. The Statistical Abstract of the United States, published by the Department of Commerce in the early nineteenth century, concentrated mostly on money and commodities, which could be easily quantified.
Adolph C. Miller, an economist and a founding member of the Federal Reserve Board, argued in 1918 that, because of the economic realities of financing World War I, “There had been “no official or authoritative estimate of the current annual income of the people of the nation,” and the national income estimates available at the time significantly underestimated the country’s economic situation. In an attempt to address the perceived undercounting, he used data from the US Census Bureau, Department of Agriculture, Geological Survey, and Bureau of Labor Statistics to calculate national income. The Federal Reserve has provided statistical releases since its inception, attempting to fill in gaps in our understanding of the nation’s economic health by tracking not only banking and finance statistics but also industrial production, retail sales, and other indicators.
Congress requested that the Federal Trade Commission (FTC) evaluate the nation’s wealth and income in the postwar years, noting that the FTC had failed to do so “We can only infer trends from the large amount of statistical data available in the country, and even then only with some uncertainty.” This was a preliminary step toward calculating the economy’s entire valuehow much money it generates “obtains.” The FTC produced a report of its estimates in 1926, based on comparable work by the Census Bureau. The FTC stated that the study’s limitationswhich solely examined “material wealth”were “insignificant in compared to what some may incorrectly expect of such an estimate.”
Throughout the 1920s, economists refined and enlarged their estimations of the value of the American economy. The advent of these revolutionary national economic statistics was significant news in business circles, but the new data were not nearly the harbinger expected. The Commercial and Financial Chronicle, for example, published barely two months after the stock market crash on December 28, 1929, featured a National Bureau of Economic Research (NBER) study boasting of “the country’s income has been on an almost constant growth trend for the past two decades.”
The Great Depression began to spread across the country not long after the crash, forcing Congress to seek for better economic data once more. In response, the Bureau of Foreign and Domestic Commerce of the Department of Commerce, in collaboration with academics from the National Bureau of Economic Research (NBER) and led by economist Simon Kuznets, produced the important study “The National Income from 1929 to 1932.” This report and its methods have established a new benchmark for gauging the economy in the United States. In the years after that inaugural research, the Bureau, which eventually became the Bureau of Economic Analysis (BEA), switched its focus in its Survey of Current Business from early monthly indicators such department store sales, freight car loadings, and bank loans to national income. The first regular publishing of national income data, in the August 1934 Survey, was accompanied by strong cautionary statements regarding the data’s preliminary nature and the risks associated with it “There are challenges in making reliable estimates.” These figures were updated once a year beginning in November 1934, however national income was not included in the monthly numbers until March 1938.
National income had become the most referenced U.S. economic figure by the early 1940s, according to the BEA’s 2007 history of national income statistics. The Survey finally received preliminary estimates of gross national product (GNP, a measure of national revenue) for 1929-41 in May 1942. National income indicators did not rise to the top of the monthly business indicators until the late 1940s, and they have remained there ever since (under various names). The Survey started publishing data on the relationships between gross national product, net national product, and national income in the mid-1970s, reflecting new approaches for evaluating the economy’s strength. GNP was the BEA’s headline figure until late 1991, when it was replaced with GDP. The August 1991 Survey detailed the differences between the two measurements and why the decision to GDP was made.
Historical studies and reports on GDP and its precursors by Federal Reserve Banks, the Board of Governors, the Bureau of Labor Statistics, and others can be found by digging further into FRASER. When looking at past economic policy decisions, it’s helpful to know what data was available and how it might have influenced those decisions.