'..these measures ignore the undeniable fact that the continuance of intermediate stages is not guaranteed, but results from a constant, uncertain series of concrete entrepreneurial decisions which depend on expected accounting profits and on the social rate of time preference or interest rate..'<blockquote>'Therefore traditional national income accounting figures tend to eliminate at a stroke the central role intermediate stages play in the process of production; specifically, these measures ignore the undeniable fact that the continuance of intermediate stages is not guaranteed, but results from a constant, uncertain series of concrete entrepreneurial decisions which depend on expected accounting profits and on the social rate of
time preference or interest rate. The use of GNP in national income accounting almost inevitably implies that production is instantaneous and requires no time, i.e., that there are no intermediate stages in the production process and that time preference is irrelevant with respect to determining the interest rate. In short the standard measures of national income completely do away with the largest, most significant part of the production process, and moreover they do so in a disguised manner, since, paradoxically and despite the label “gross,” they cause non-experts (and even most experts) in the field to overlook the most significant part of each country’s productive structure.<sup>39</sup>'
<font size="-1">39 As Murray Rothbard indicates, the net quality of GNP invariably leads one to identify capital with a perpetual fund that reproduces by itself without the need for any particular decision-making on the part of entrepreneurs. This is the “mythological” doctrine defended by J.B. Clark and Frank H. Knight, and it constitutes the conceptual basis for the current national income accounting system. Thus this system is simply the statistical, accounting manifestation of the mistaken understanding of capital theory promoted by these two authors. Rothbard concludes: “To maintain this doctrine it is necessary to deny the stage analysis of production and, indeed, to deny the very influence of time in production” (Rothbard,
Man, Economy, and State, p. 343). Furthermore the current method of calculating GNP also strongly reflects Keynes’s influence, enormously exaggerating the importance of consumption in the economy and conveying the false impression that the most significant portion of the national product exists in the form of consumer goods and services, instead of investment goods. In addition this explains why most agents involved (economists, businessmen, investors, politicians, journalists, and civil servants) have a distorted idea of the way the economy functions. Since they believe the sector of final consumption to be the largest in the economy, they very easily conclude that the best way to foster the economic development of a country is to stimulate consumption and not investment. On this point see Hayek,
Prices and Production, pp. 47–49, esp. note 2 on p. 48, Skousen,
The Structure of Production, p. 190, and also George Reisman, “
The Value of ‘Final Products’ Counts Only Itself,”
American Journal of Economics and Sociology 63, no. 3 (July 2004): 609– 25, and
Capitalism (Ottawa, Ill.: Jameson Book, 1996), pp. 674ff. See also next footnote 55.</font>
– Jesús Huerta de Soto,
Money, Bank Credit, and Economic Cycles, page 310 and 311</blockquote>
<blockquote>'Global monetary policymaking is a complete mess.'
- Doug Noland,
Confidence Wearing Thin, September 02, 2011</blockquote>
<blockquote>'The greatest distortion of the GDP measure arises in societies where democracy does not exist, and so actions by government are arbitrary, with the populace on whom costs are imposed being helpless to remove them. In North Korea and in the former Soviet empire it is surely now clear that government imposed enormous costs on its people, reducing their living standards far below what would have been available to them under a free-market with a minimalist state. Yet under GDP accounting, every bureaucrat, every secret policeman is counted toward national output – one reason why GDP estimates for the former Soviet bloc were so inflated, with East Germany in 1989 being listed in my Economist 1991 Diary as having a higher GDP per capita than Britain.'
- Martin Hutchinson,
Only Alien Invasion Can Rescue Keynes, August 22, 2011</blockquote>