Social Accounting Systems

Louis Filler, M. Yanovsky

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781138532656
• eBook ISBN: 9781351490689
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Social accounting grew up as a result of the desire to bring together in a meaningful and comprehensive manner all the available observed facts on the economic and financial activity of a nation. Three social accounting systems of flow have been developed during the last three decades. Each of these systems has been constructed separately and independently. The framework of each system is constructed to tackle specific aspects of the national economy. It is also designed in a manner, which helps in framing policies for future activity. The aim of this book is mainly to describe the anatomy of these three social accounting systems and compare their structures. Some attention is also given to a comparison of the systems in actual use by some industrially developed countries, including the centralized economies. The problem of integrating the three systems is also cursorily treated. The student of economics, and the economist in the service of industry, private or public, will obtain from this book a picture of the concepts and: definitions used in social accounting; the book also describes how each system is constructed, and which economic study or analysis it can best serve. Another valuable feature is the comparison the author makes of the national accounts system with the Russian "Natsional'ny Dokhod." In this far-reaching and complex work, the author has brought together the fruits of his very extensive studies into the social accounting methods of many nations, and he goes beyond the analysis of existing systems to suggest ways of tackling the problems of integrating the three main systems into one. Dr. Yanovsky is at present senior economist in the State Comptroller's Office in Israel. He studied economics in the Universities of Chicago and Manchester (where he obtained his doctorate at the Department of Economics and Social Studies in 1963). It was from a thesis he wrote while in Manchester that he drew the inspiration, and much of the material, for

CHAPTER ONE
National Accounts Systems – Concepts and Definitions

I Origins

A. Early Inquiries Into National Income Aggregates

The interest of economists in determining the level of national income of a nation and its distribution among the various sectors -productive and non-productive – of the population can be traced to the 17th century. The ‘political arithmetician’ Gregory King made in 1696 an inquiry into ‘The Annual Income, and Expense of the Nation, at it stood Anno 1688’ [8] (This inquiry and other ‘Natural and Political Observations and Conclusions upon the State and Condition of England 1696 by Gregory King Esq., Lancaster Herald’ are subjoined in George Chalmers’ ‘An Estimate of the Comparative Strength of Great Britain’.) The contribution of this work lies mainly in the fact that information on the ‘income flow’ of a nation as compared with the ‘wealth’ of a nation had been provided.

It was, however, only after the First World War that economists began to apply their analytical power and statistical tools to the measurement of current production and the distribution of its fruit.

From scattered statistical data, Professor Bowley compiled and calculated the average wages and aggregate earnings of the working population since i860, and Sir Josiah Stamp adjusted information on the amount of taxable income as far back as 1847.

More consistent and continuous, though not particularly systematic, statistical work was then also started by Government statistical offices in most western countries. These offices began to compile the necessary information and make appropriate computations of various income, expenditure and product aggregates, inter-related also with demographic statistics. At the same time, economists and statisticians have contributed a great deal to the analysis of these data. With their interest in income analysis they have gradually built up the theoretical background for a national income accounting system. The studies of Sir Josiah Stamp [5] and of Professor Bowley [4] instigated by the National Institute of Economic and Social Research have been a great stimulus for wider and deeper empirical observations on income, consumption, and savings. Professor C. Clark [9] not only computed and analyzed all the major national income aggregates, but also suggested clear definitions of the concepts of national income. In the United States, Professor Kuznets [26] has started a series of thorough studies on national income and its composition which served as a background to national accounts systems as are in use now.

However, the construction of a systematic framework into which the national income, expenditure, and accumulation of capital aggregates could be arranged in a way that the inter-relation between them could be clearly seen and grasped was left to the days of the Second World War and immediately after it.

B. The Impact Of Business Accountancy On The National Accounts Systems

Systematic accounting systems for private trade and business firms are known to have been in existence for at least five centuries. The most popular and widely used of these was that laid down in principle towards the end of the 15th century by Lucas Pacioli, an Italian Franciscan monk, in his ‘de computis et scripturis’ [14]. Pacioli, who was a close friend of Leonardo da Vinci, was a mathematician, and connected in various ways with the commerical world of those days.

The three most important principles of this private business accounting system, in their impact upon the national accounts system, are as follows.

Firstly, any individual, either in his capacity as a consumer or as a producer, any enterprise, whether owned by one or several individuals, and any organization or institution, can be regarded as a book-keeping unit, or accounting entity. Secondly, there exist two types of transaction: a transaction of flow – actual or imputed -which is either an income or an expense of the book-keeping unit, whose combined flows during a stated period of time comprise the items of an income and expense statement; and a tranasction of change in the status and composition of the assets and liabilities of the book-keeping unit, or an addition or decrease in the status of wealth of the unit. This is why the residual between the income and expense – positive or negative – of a stated period of time, constitutes a transaction of change in the assets or liabilities. The description of the status of the entity’s assets and liabilities at a fixed date constitutes its balance sheet. Thirdly, transactions of flow and transactions of change in wealth are inter-related. This interdependence characterizes the whole book-keeping system.

It is because of these basic principles that the business bookkeeping system has been successfully used alike by small and by large and multiple firms.

Viewing the various groups of transactors or sections of an economy as subsidiaries of the whole national economy, and the whole economy as the central accounting unit, enabled economic statisticians to adapt the business accounting system as an accounting framework for national economc activity. Such adaptation, they realized, could conveniently be applied to present a systematic measurement of national income, of expenditure on the national product, and of accumulation of national wealth and other economic flow aggregates. It could be used to demonstrate the interrelationships between these flows and aggregates. It could in fact also be adapted for the presentation of statements of wealth or national balance sheets.

C. Developments Since The Second World War

The National accounts system began, as already indicated, to take its final shape during the Second World War, and, with increasing momentum, immediately after it. The complicated economic problems which the war produced, encouraged economists in the academic world and in official circles to establish a methodological system for the measurement of national production and the national income it generates. The international organizations established during the forties also sought a comprehensive and uniform statistical tool which could be used for the international comparison of economic activity.

By 1947 the United Kingdom, the United States, Australia, Canada, Ireland, and the Netherlands had formulated and put into use complete and inter-related national accounts systems. These accounts already provided the methodological estimates of national product, national income and its distribution by factors of production, private and public consumption, and capital formation aggregates.

It was in 1947, also, that the sub-committee on national income statistics of the League of Nations Committee of statistical experts issued its report on ‘Measurement of National Income and the Construction of Social Accounts’. To this report was attached a memorandum submitted by Richard Stone – who acted as chairman of the above committee – on ‘definition and measurement of the national income and related totals’ [39]. Though a number of changes have since been introduced in the national accounts system proposed by the international organizations, this memorandum remains nevertheless a basic study in concepts, definitions, and taxonomic problems. The selection and definition of the economic aggregates have been clearly influenced by Keynesian thought – a fact which has been pointed out by Professor Stone. Applying an accounting framework to the Keynesian theory brought out clearly what data and what classification of data are required to establish a meaningful, useful, and convenient method for applying it to policy making.

D. Advantages And Practical Uses

There are many reasons for the fact that national accounts have rapidly gained such exceptional popularity among political and social leaders, industrialists and economists. The main advantages of the system and its practical applications could be summarized as follows:

1. The national accounts were drawn up with the view of helping the public authorities in formulating their economic and fiscal policies. This use of the national accounts to exert active public influence on economic development is still of great importance. The abundance of facts organized in an inter-related manner are guides to a study of cause and effect in economic activity. Even in developing countries where some of the statistical estimates in the accounts are liable to be not as precise as is desirable, the accounts as a whole are nevertheless of guiding value to decision-making in public policy.

The use of the national accounts for the study of the economy and appropriate decision-making has also spread to the business world and to the labour organizations. Business firms take great interest in the study of their share in the aggregate production of their industry and in the total national production. This interest is exhibited in a desire either to expand their part of the total production of their industry or to adapt their activity to that of other industries. They also find in the accounts factual data about the distribution of national expenditure, i.e. which markets are expanding and which are contracting.

For the labour organizations the income part of the accounts is of particular interest in decision making. Here they find the distribution of the shares of income and the correlation of these shares with production.

2. Though the international organizations have the ambitious aim of being able to use the national accounts for international comparisons of production and income, it has to be admitted that with the present vast economic and social differences between the various countries this must remain for some time no more than an ideal. However, serious attempts have been and could still be made to compare the production, income, consumption, and capital formation of countries in various parts of the world.

3. The accounts constitute a framework which makes possible a continuous systematically interrelated and consistent record of data on the basic economic functions in an economy – production, consumption, and accumulation of capital.

4. Because of the consistency of the accounts, it is possible to obtain some hitherto unavailable but required aggregates in the way of balancing residuals. This is particularly advantageous for developing countries where the collection of statistical data has not reached all branches of economic activity. This consistency also makes it possible to derive the various combinations of aggregates essential for economic analysis.

5. It is not uncommon to find that independent statistics compiled by various organizations and institutions, private or public, are biased to a greater or less degree according to the views or policies of the organizations. The simultaneous use of these data in the framework of the national accounts makes it possible to disclose and correct any errors or biases in statistics compiled in isolation.

6. The system has often been justly referred to as a meeting place for economic theory and practical possibilities. The possible as compared with the theoretically desirable classification of the various sectors of an economy, the grouping and aggregating of transactions, the application of various concepts, are all tested empirically. While some of these classifications and concepts fit in the system and thereby help further economic analysis, others are brought back to the economist for further consideration and classification of the problems involved.

7. The accounts provide primarily a quantitative description of the structure and economic activity of a country in a period of time. They become particularly useful when applied in aggregate econometric model building. The consistency of the accounts make it possible to indicate and forecast economic trends more precisely.

For most of these econometric models a series of national accounts over a long period of time is required.

It will later be demonstrated how the national accounts become a direct tool in forecasting economic activity and in economic programming and planning when used in combination with the input-output system.

8. The national accounts have also been found to be useful in the teaching of economics. Basic economic concepts and identities are grasped more easily and made clearer by following the interrelationship between the various aggregates and accounts. Prominent economists have written textbooks using the national accounts approach as a pedagogical method for explaining and analyzing economic activity and interdependence.

9. National accounts could be very useful in the construction of periodical national balance sheets. Many important points of mutual interest to both systems could be brought to light.

II Sectoring An Economy

Before proceeding with the description, and analysis of the national accounts system as recommended by international organizations and its comparison with those in use by some major and highly industrialized countries, some of the basic concepts and definitions underlying this system will be clarified. Such a clarification may, indeed, throw light on the concepts of the other social accounting systems it is proposed to study. The first concept to be discussed is that of sectoring an economy for a national accounts system.

A variety of economic activitities are performed in each society. Innumerable transactions are carried out daily in the course of these varied activities. The whole population and its various organizations and institutions are involved in these transactions. They are the transactors. All these transactions, transactors and activities must be reduced to proportions which can be intelligibly grasped and analyzed. To achieve this, transactions must be classified by definite types, activities distinguished in form, and the transactors grouped into meaningful sectors. Moreover, the classification of transactions must be attributed to specific sectors.

No social accounting system, constructed as it is to give as concise as possible a presentation of the economic activity, should claim competence to embrace all aspects of economic and financial activity with similar thoroughness for the use of policy makers, or to supply all the empirical data for ramified economic and financial theories. A social accounting system is admissible as long as it has a coherently determined plan for the analytical presentation of economic aggregates, so that there is some interdependence between them. It is the interdependence and not the comprehensiveness that determines whether the set of accounts constitute a system or not. A certain aspect of economic or financial activity may be ignored by one system, and another sphere of productive activity may be disregarded by some other system. Each system, however, must, within its domain, show a coherent and distinct connexion between the various components of the flows included, the interrelationship between these flows, and the building up of the flows into aggregates. Furthermore, it cannot be argued that because one system is more suitable than another to the thorough analysis of a certain aspect of economic activity, therefore by amalgamation of the two systems an analytical tool could be constructed with which it would be possible to cope with all the economic problems of all the different economic structures. A comprehensive, interdependent, and articulated social accounting system must still remain an ideal.

Each social accounting system must, as will become more obvious later, have the economy sectorized according to the main task of economic or financial analysis it has been designed to perform. The way in which the economy is sectorized is indeed one of the clearest indicators of the major aims of a particular social accounting system. It will therefore be necessary to refer continuously to the sectoring problems of each social accounting system and to the sectoring approach of the various versions of each social accounting system.

The national accounts system has been regarded from its inception as a framework for describing and demonstrating the mutual relationship between production activity, income originating in production, and the use of the income for consumption and capital accumulation. The production, consumption, and saving functions in an economy are performed by various, but not necessarily different, transactors each performing one or more functions. The similarity of functions performed by the transactors is the criterion for their classification into sectors. A transactor who performs two different functions could then be grouped into two sectors. A farmer in his capacity as a farmowner is classified as belonging to the enterprize sector, while in his transactions as a consumer he is included in the households sector. While the functional division of the groups of transactors is the main consideration in sectoring for national accounts, the division is also approached – implicitly at least – from the point of view of the economic aims of the transactors. When a transactor performs a certain economic or financial function he does it generally with a definite aim in mind. We are all aware of the fact that the aims and motives of the private producers and sellers, or those of the owners of the productive factors in a modern industrialized monetary system, are different, if not opposed, to those of the ‘have not’ consumers. The government, on its part, may also have its decided aims and policies in the social economic, political, or military spheres of the society and its transactions are determined accordingly. Implicitly, then, the aims of the transactors are therefore also to be taken into consideration.

It should, however, be stressed again that the sectoring for the national account system is largely on a functional basis. Indeed any change in this basis is liable to put out of balance the whole structural framework and make it useless for the purpose for which it was originally constructed.

An economy,formost national accounts systems,is dividedinto three sectors. These three sectors are: the consumers’ sector; the producers’ sector; and the government sector. This c...

Table of contents

• Cover Page
• Social Accounting Systems
• copy
• Contents
• PREFACE
• INTRODUCTION
• CHAPTER I: National Accounts Systems – Concepts and Definitions
• CHAPTER II: A Comparison of National Accounts Systems
• CHAPTER III: Input-Output System
• CHAPTER IV: Flow of Funds Systems
• CHAPTER V: Integration of the Social Accounting Systems
• BIBLIOGRAPHY
• INDEX