[A-List] Gross National Product (GNP)

[Bill Totten]

How is it Calculated? What does it Measure?

by Professor John Kozy

Global Research (August 24 2009)


Although the Department of Commerce claims that GDP measures the final
value of goods and services produced in the United States in a given
period of time, it merely measures the income of the politically
sanctioned commercial class. GDP is used as an indicator of how well that
commercial class is doing; it is not a measure of the nation's well being.

Have you ever looked closely at how Gross National Product (GNP) is
calculated? Have you ever thought about exactly what it measures? Have you
ever wondered why it measures that?

The basic formula adds up all the money spent by different groups for
specific products and services within a region over a specified period
(usually a year).

GDP = C + I + G + (X - M)

Where:

C = Household and personal consumption expenditures

I = Gross private domestic investment expenditures

G = Government consumption and gross investment expenditures

X = Expenditures on goods and services exported

M = Expenditures on goods and services imported

(Removing X and M from the formula yields Gross Domestic Product.)


Many have pointed out the flaws in this measurement:

1. It does not measure production; it measures sales.

2. It omits all the money spent in the underground economy.

3. It doesn't distinguish between money spent in a gambling casino and
money spent on a car. Money spent in a gambling casino doesn't buy a
product or a service.

4. It doesn't distinguish between quality and quality.

But are these really flaws? The answer depends on what the measurement's
purpose is. Consider the following three examples:

1. During prohibition (1919 to 1933), the sale of alcoholic beverages in
the United States was prohibited, but alcoholic beverages were sold
nevertheless. The money spent on them would not have been counted in GNP
("GNP" was first used in 1934). Since the 18th Amendment was repealed in
1933, the money spent on alcoholic beverages is included in GNP. But even
today, if there are any moon shiners selling alcoholic beverages in the
hills of Appalachia, the money taken in is not included in GNP.

2. For many decades, cocaine was legally sold in the United States. Since
1914, its sale has been prohibited. Up until 1914, the money spent on
cocaine would have been counted in GNP; since then, it is not.

3. Some of the money spent on gambling is included in GNP and some is not.
Gambling has always existed in the United States. Attempts to prohibit it
began in the early 19th century. Where it was prohibited, it was carried
on by various "criminal" elements, principally the Cosa Nostra. Eventually
some of the wealth amassed by the Mafia was laundered and used to build
the casinos of Las Vegas where gambling was and is legal. The money gotten
illegally was used to build Sin City. The money spent on legal gambling is
included in GNP; the money spent on illegal gambling is not.

Although the Department of Commerce claims that GDP measures the final
value of goods and services produced in the United States in a given
period of time, it most certainly does not. What it measures is the money
spent by consumers in a segment of the economy. As the three examples
above show, not only are not all goods and services produced included in
the measure, the same goods and services are sometimes included and
sometimes not. The only relevant criterion is who gets the money. If the
vendor is politically approved, the money gets included; if the vendor is
not, the money is excluded. So in actuality, GNP measures the amount of
money transferred from consumers to politically connected vendors. GNP
merely measures the income of the politically sanctioned commercial class.
When GNP goes up, the commercial class gets richer; when it goes down,
that class gets poorer. GDP is used as an indicator of how well the
commercial class is doing; it is not a measure of the nation's well being;
it does not account for poverty, crime, hunger, homelessness, and a host
of other "people" problems.

So why is the government concerned about only the wealth of the commercial
class? Why isn't it concerned with the wealth and well being of the
people? Well, it's the economic system, stupid! Capitalism is about the
welfare of capitalists, nobody else.

When the first Adam in the garden of Edinburgh ate from the tree of
patronage, he produced An Inquiry into the Nature and Causes of the Wealth
of Nations, which still serves as the foundation of Classical economics
and its numerous variations. The work was not hailed for the cogency of
its argument or the systematic nature of its exposition. Criticisms of it
emerged almost immediately. What it did, however, was provide a way for
the English commercial class to rationalize what it had always done and
wanted to continue doing. It gave the members of this class what appeared
to be a "scientific" justification for the most outrageous, immoral
activities that had always been employed to increase their wealth. It
converted the Seven Deadly Sins into the Seven Commercial Virtues. It not
only took the good out of goods and services, it took the good out of
everything.

The wealth of the commercial class became equivalent to the wealth of the
nation; it became GNP. That national wealth, however, does not reside in
the nation's treasury, and nation states have become nothing more than
means for increasing the wealth of politically connected commercial
classes and the political establishment, political-economic oligarchies.

The consequences of this economic system have been deadly and disastrous.
It was employed by all of the Western European imperial nations. It was
employed by the British Empire from its inception to the end of World War
Two. What did it accomplish? Well, except for those colonies populated by
English expatriates, in 1945, not a single British colony was viable and
prosperous. Every colony had been raped to increase the wealth of English
commercial interests. But the English people had not faired well either,
so they put a socialist government in power. Winston Churchill, their
Conservative, heroic leader during World War Two, was unceremoniously
removed from office to his dismay.

The British Empire lasted from the 16th to the 20th century - almost 400
years. If Adam Smith had been right, Capitalism should have increased the
wealth of England enough to make the wealth of Midas look paltry. But
England, the nation, never became wealthy. In fact, it could not even
finance its colonial wars. It had to borrow fifty million dollars to
finance the Boer War. It borrowed money from the United States to finance
its defense in both World Wars One and Two. Capitalism does not enrich
either nations or their peoples. The fifteen nations that have the highest
national debt also have the highest GNPs.

The United States of America is now the world's dominant imperial power.
It too has the world's highest GNP and the world's largest national debt.
It too cannot finance its wars, the rebuilding of its infrastructure, or
social programs. Yet it can finance failed commercial enterprises by
borrowing money it doesn't have from nations with lesser GNPs. In the
current debate over healthcare reform, the major concern of many
Congressmen, especially Republicans, is making certain that the nation's
medical insurance companies are not forced out of business. To those
Congressmen, that concern renders the premature deaths and suffering of
Americans caused by curable illnesses inconsequential. If anyone doubts
that America exists merely for the welfare of its commercial elite, this
analysis of GDP should crush it. Is America the land of opportunity? Yes,
but not for you and me. Most of us are merely chattel to be herded,
burdened, and disposed of to accommodate the interests of commerce.

Gross National Product is not about products or nations, but it most
certainly is gross. _____

John Kozy is a retired professor of philosophy and logic who blogs on
social, political, and economic issues. After serving in the US Army
during the Korean War, he spent twenty years as a university professor and
another twenty years working as a writer. He has published a textbook in
formal logic commercially, in academic journals and a small number of
commercial magazines, and has written a number of guest editorials for
newspapers. His on-line pieces can be found on http://www.jkozy.com/ and
he can be emailed from that site's homepage.

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(c) Copyright John Kozy , Global Research, 2009

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