I just re-read, or read properly, Simon Kuznets’ 1966 book Modern Economic Growth. (A sliver of silver lining in libraries closing or getting rid of old books is that you can sometimes find them at low prices online, although also sometimes at algorithmically weird ones.) It turns out that all the new debates are actually old debates. A few points leapt out at me on this reading.
First, Kuznets’ insistence that: “[T]he definition of national product used for measuring economic growth embodies the accepted notions of the means and ends of economic activity, reflecting the main features of modern economic society.” When society changes, the relevant concept changes. “If we are to understand modern economic growth, we must measure its magnitudes in terms of the modern system of means, ends and values.” This certainly speaks to my view that GDP is fitting society decreasingly well.
A second point is the definition of a sector – I’m puzzling now over the relevance of lengthening supply chains and implications for thinking about both sectors and productivity in the process innovation sense. A sector is defined by the raw materials it uses, the production process and the finished product. “A marked change in one … is usually the basis for distinguishing and defining a new industry.” His example is the emergence of rayon although it served the same market as cotton textiles.
There are many more fascinating reflections – including the disparity between definitions of intermediate consumption and investment for the corporate and household sectors – why is household expenditure on commuting not an intermediate, or on education not part of investment? A book well worth revisiting. And an interesting counterfactual question – what society would we have now if Keynes’s GDP-style measure had not trumped Kuznets’ economic-welfare conception of aggregate output back in 1940?