I’ve been re-reading Robert Skidelsky’s original biography of John Maynard Keynes (The Fighting for Britain 1937-46 volume, not the recent Return of the Master). In particular, refreshing my more than 10-year-old memory of the origin of national income accounting at Keynes’s instigation. Since 1937, Keynes had been urging the government to collect the appropriate statistics. He wrote: “Every government since the last war has …regarded the collection of essential facts as a waste of money.”
But, as Skidelsky continues:
“What he omitted to point out was that such facts were essential only for the purposes of ‘demand management’ which the pre-war Treasury regarded as neither feasible nor desirable.”
According to Roy Harrod’s earlier (1951) Life of John Maynard Keynes, soon after publication of How to Pay for the War in 1939 had introduced the concept to a wider public, Keynes circulated privately a pamphlet A Budget for National Resources. Subsequently Austin Robinson at the Treasury set Richard Stone and James Meade to work producing the UK’s first national accounts. This was published with the 1941 Budget. According to Harrod, it was: “A great revolution… This kind of accounting has come to be regarded as the essential tool of any economic planning, whether of an Individualist or a Socialist variety.”
In their superb recent book on Keynes, Capitalist Revolutionary, Roger Backhouse and Bradley Bateman note that Paul Samuelson, reflecting on the parallel work on national accounting in the US described the war as , not the physicists’ war, but ‘The economists’ war.’ They say: “Economics emerged from the Second World War with its reputation greatly enhanced.”
It is an interesting perspective on the current debate about measuring the economy. GDP was never intended as a measure of welfare or well-being, but as a measure of the nation’s productive capacity in wartime, for the purposes of government planning. The fashionable survey measures of ‘well-being’ are obviously a rubbish indicator for policy purposes. There is, though, a question about whether GDP, adapted so much over the years in successive new international standards, remains the right indicator for government policy. What war should economists be fighting now?