The purpose of combining national accounts and the theory of economic value is explained in this chapter. The main argument is that the concepts of a theory should comply with the standards of their measurement, which in economics are those of accounting.
This is the first of four chapters on the principles of national accounting, beginning with the definition of an economy. After briefly outlining what is meant by the measurement of economic value, the transactor/transaction principle is exposed as the fundamental rule for determining the data for national accounts. A hierarchical system of terms is constructed, detailing the transaction concept and clarifying its classification criteria. Then the concept of transformation is brought in as a complement to transactions needed for determining the value of production and consumption. A digression into the history of the debate on the transaction concept completes the chapter.
In this chapter we investigate the source of economic value: production. We show how national accounting relates the value transactions between economic agents to ‘value added’, as it is called internally, and how the duality of transaction and transformation is reflected in the duality of the enterprise as an institutional unit and the establishment as a functional unit of observation. This leads to the main theoretical question treated in this chapter: how to define production.
The purpose of national accounts is to compare economic parameters in time and space. However nominal values, which are the value of transactions between institutions, are not directly comparable in this way. They must be controlled for changes in the purchasing power of the transaction unit: money. This chapter investigates the procedures employed in this process, focusing on the recommendations of the SNA, namely the Geary-Khamis index and the chained Fisher index for comparisons in space and time. A theory of relativity of value is inferred, resulting from the necessity of working with commodity bundles as the standard of value in spatial and temporal comparisons. A scheme for integrating these two dimensions in one coherent system is proposed.
The index number problem concerns the link between qualitatively different commodity groups. It is handled on the assumption that each group is qualitatively homogeneous within itself, but this is by no means true. In order to arrive at homogeneity the quality problem must be solved first. We touch on an area in which the measurement of value problem is most concrete in that the transactions recorded in the national accounts are gauged to certain goods and services. In this chapter the price observation routines that have become standard in national statistical systems will be investigated in order to analyse the concept of product group homogeneity implied by them. The conclusion is that quality is value. They are the same concept in theory, and are measured by a market equilibrium price in practice. The fundamental notion of a ‘pure price change’, upon which price statistics rely, is interpreted and contrasted with the price concept in microeconomic value theory. The concept of general price change (developed in the previous chapter) as a monetary phenomenon of value and the reference point against which to study relative price changes of products is reinforced.
In Part III of this book we draw on the analysis of national accounting principles conducted in Parts I and II. The subject matter of this chapter is the distinction between the microeconomic approach and the macroeconomic approach to value theory. Each approach is presented in its axiomatic form, and the differences and contradictions between the approaches are pointed out.
Having established a distinction between the two theories of value we return to the national accounts for further interpretation. The meaning of volume and price indices is investigated from a value theoretic perspective and the concept of real value is related to it in a systematic way. Finally, the old question of how to account for the use or possible misuse of nature is taken up again, and a new answer is given. It is stated that not just a particular part of GDP, but all of it must be attributed to nature as a gift from a factor that cannot be paid by any means.
This chapter presents some conclusions from our analysis of the principles of the national accounts and the theory of value. The first section investigates the concepts of ‘utility function’ and ‘production function’, well known in the microeconomic realm. The second section deals with the concept of equilibrium, which needs to be refined beyond its microeconomic determination. The final section addresses what might be called a modern version of classical value theory, corroborating the claim that there are well-founded alternatives to the microeconomic analysis of value.
As stated in the Introduction, the purpose of this book — of which the author and the reader have now reached the end — is twofold: to join economic concepts pursued in the legacy of Richard Stone with those inherited from Sraffa, and to be entertaining in this endeavour. In ancient Greece the enacting of a set of three tragedies was followed by one comedy. Although the reader may have been subjected to a tragic breakdown as a result being confronted with issues that are usually treated separately by the economics discipline, in this book the comedy does not follow. It will have to wait until a future date, as will some more serious questions that have sprung up in this book but not been answered.
