National Income and Economic Growth (Routledge Revivals)

Kenneth Kenkichi Kurihara

• Publisher: Routledge
• Year: 2012
• ISBN:
  9781136625817
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Business allgemein

First published in 1961, Kenneth K. Kurihara's National Income and Economic Growth makes a pioneering effort to integrate national income accounting, income-employment theory and growth analysis as a unified whole. In his belief that growth economics is taught most effectively as a dynamic implication of basic national income theory, Professor Kurihara offers a much fuller treatment of economic growth than most other texts of this genre. The author addresses the complex and pivotal problem of achieving the highest possible rate of growth of real national income while maintaining full employment without inflation, yet the book is confined to the clarification of the technical aspects of the problem. Professor Kurihara endeavours to make allusion to practical application and broad 'determinants of determinants' throughout in the varying context of a modern mixed open economy with its dynamic interaction of the private, the public and the foreign trade sectors. The book is intended for intermediate students of macro-economic theory.

PART I

INCOME FORMATION

CHAPTER 1

THE CONCEPTS AND MEASURES OF NATIONAL INCOME

NATIONAL income like love, is ‘a many splendoured thing’. It is at once a unique and manysided entity. Unique because it is by far the best index of the health and growth of body economic. Manysided because it has a number of interdependent facets affecting the functioning of the whole economy in a delicate, intricate manner. This chapter is intended to provide a rudimentary survey of the concepts and measures of national income that are useful for different purposes.

DEFINITIONAL CATEGORIES OF NATIONAL INCOME

According to the convention of ‘social accounting’, we shall outline below five definitional categories of national income.¹

1. Gross National Product (GNP). The most fundamental measure of the productive activity of a national economy is ‘gross national product’ or simply GNP. A GNP figure represents the gross value of final products turned out by the whole economy in a specified period. There are two technical points to be noticed about the concept of GNP, namely: (a) inclusion of ‘replacement investment’ and (b) exclusion of ‘intermediate’ goods and services subject to double-counting. The prefix ‘gross’ in the above definition of GNP is intended to indicate the first of these points, while the adjective ‘final’ is designed to stress the second point.

As for the first point, GNP is calculated without taking explicit account of that part of total value of newly produced capital goods which represents the replacement of worn-out capital equipment, and which is known as ‘replacement investment’. In other words, the gross value of capital goods including the value of existing equipment consumed or depreciated is what accounts for the prefix ‘gross’ involved in GNP. As for the second point, the risk of creating an upward statistical bias is avoided by excluding an intermediate product like flour that is incorporated into a finished product like bread. This avoidance of double-counting is necessary, since the value of national output would otherwise appear misleadingly exaggerated.

By way of evaluating the usefulness of the concept of GNP we may emphasize the strengths and weaknesses inherent in it. The substantive strength of the GNP concept lies in that it reflects, more accurately than any derived statistical concept, the actual conditions of production and employment during the period in question. For total production in the current period is not underestimated in a GNP figure, as it would be in a derived figure excluding replacement investment. Nor is total employment, considered as a function of total production, understated, as it would be if the number of those employed in producing the new capital goods destined to replace the old depreciated ones were to be excluded from the calculation. Another strength, though formal, of the GNP concept is found in that it avoids many conceptual and statistical difficulties involved in estimating the value of capital consumed or depreciated as well as many arbitrary assumptions involved in reducing a product figure to an income figure. On the other hand, the concept of GNP suffers from the crucial weakness that it obscures the current net gain in production over and above the capital consumed and replaced. This weakness is inherent in the practice of calculating the total value of final products before deducting the value of worn-out capital equipment. In sum, the concept of GNP is particularly useful for the purpose of analyzing national economic activity during a relatively short period, that is, for the type of analysis which proceeds by taking the physical stock of capital, technology, and other fundamental conditions of supply as given.

2. Net National Product (NNP). As the prefix ‘net’ suggests, the concept of ‘net national product’ or NNP is arrived at by deducting from a GNP figure the value of capital consumed or depreciated or, what is the same, by specifying the investment involved as ‘net investment’ which equals gross investment minus replacement investment. Here some arbitrary assumptions must be made about the nature of ‘capital consumption’ or ‘depreciation’. It is customary to assume that what individual business firms regard as the fair value of the annual decline in the services of existing equipment (machines, factories, and other durable instruments of production in their possession) roughly corresponds to the ‘capital consumption’ of the economy as a whole, that is, to the objective decline in the physical stock of fixed capital owned by the whole economy. Strictly speaking, though, the ‘depreciation allowances’ of private business firms as a whole and the ‘capital consumption‘ of the whole economy are cenceptually different, for a number of reasons.

First, the former is an accounting concept based on the idea that money capital must be kept intact, while the latter is an economic concept based on the idea that physical capital must be maintained. For example, a new invention may render physically productive machines nevertheless obsolete and so increase the depreciation allowances of their owners. Second, capital consumption on a national scale actually involves the physical wear and tear of government-owned fixed capital, which wear and tear may not appear in capital-consumption figures for fiscal reasons. One cannot obviously infer the decline in the physical productivity of government-owned durable capital froe is nm the ‘depreciation allowances’ of private concerns. Lastly, there is no logical reason for not considering the wear and tear of durable capital in a broader sense, that is, when including land and ‘consumer capital’ (furniture, pleasure automobiles, and other durable equipment owned by consuming units), even though landowners and consumers may not charge themselves ‘depreciation allowances’ in practice.

Despite these controversial points, the concepts of NNP have the great advantage of clarifying the net increase in total production over and above current consumption and current replacement investment. It has the additional advantage of stressing the long-run significance of maintaining and improving the physical productivity of capital for economic growth. It is these advantages which make the NNP concept uniquely fit for the purposes of ‘growth economics’.

3. National Income (NI). As distinguished from what is loosely termed ‘;national income’, there is a rigorously defined measure that should be called ‘national income proper’. We are concerned with this latter measure of overall economic activity at this time. Thus far we have been looking at ‘national income accounts’ from the product side, but now we may turn to their allocation or distribution side. Formally, there are two...