ABSTRACT
It will be useful if I tell you in advance where the argument is leading. It is a commonplace thought that the national income and product accounts, as currently laid out, give a misleading picture of the value of a nation’s economic activity to the people concerned. The conventional totals, gross domestic product (GDP) or gross national product (GNP) or national income, are not so bad for studying fluctuations in employment or analyzing the demand for goods and services. When it comes to measuring the economy’s contribution to the well-being of the country’s inhabitants, however, the conventional measures are incomplete. The most obvious omission is the depreciation of fixed capital assets. If two economies produce the same real GDP but one of them does so wastefully by wearing out half of its stock of plant and equipment while the other does so thriftily and holds depreciation to 10 percent of its stock of capital, it is pretty obvious which one is doing a better job for its citizens. Of course the national income accounts have always recognized this point, and they construct net aggregates, like net national product (NNP), to give an appropriate answer. Depreciation of fixed capital may be badly measured, and the error affects net product, but the effort is made.
