And yet – astonishingly – the only serious Austrian measures of real national output proposed in place of GDP, such as Rothbard’s Gross Private Product (GPP) and Mark Skousen’s Gross Domestic Output (GDO) are nothing but aggregates!
GDP is the following:
GDP = C + I + G + (X-M).Rothbard’s Gross Private Product is little more than GDP, with G removed. That is to say, Rothbard’s Gross Private Product is merely this:
GDP = C + I + (X-M).This is an aggregate of aggregates too: the total value of final consumer goods and total value of gross investment (new housing, replacement purchases, net additions to capital assets and investments in inventories), and exports minus imports. If Rothbard’s Gross Private Product is to be taken seriously, then it must be legitimate to aggregate the value of C, I, and (X-M).
Think of C as an example: the aggregation of the sale price of consumer goods in money terms in one year must be perfectly valid and meaningful, though such goods are heterogeneous. If you could not, for example, meaningfully aggregate the value of sales of heterogeneous goods in one year for a firm, how could a firm calculate its total income from sales?
Now gross investment is, as I have said, new housing, replacement purchases, net additions to capital assets and investments in inventories. Obviously, these goods are heterogeneous, and not all capital goods investments in one year will lead to a profit in the future, but you can still aggregate the sale price of these new capital goods bought (or value of new capital goods added into the capital stock). Rothbard’s Gross Private Product requires gross investment.
Government spending (G) is (1) final consumption expenditure by government and (2) government gross capital formation (infrastructure investment or research spending). Government expenditures that are transfers of money (social security payments, pensions, etc.) are transfer payments. Transfer payments are not included in government purchases. Rothbard’s Gross Private Product removes income originating in government and government enterprises.
Mark Skousen appeals to “Gross Output (GO)” – which is intermediate input plus GDP – as a more accurate measure of national output. In The Structure of Production (1990), Skousen attempted to create a new output statistic: Gross Domestic Output (GDO), as his “Austrian” alternative to GDP. However, he seems to regard Gross Output (GO) as an acceptable version of this, and Gross Output (GO) is nothing but an official Commerce department aggregate measure of output that aggregates GDP and the value of intermediate input (or what Skousen calls the “goods-in-process sector of the economy,” including commodity factor inputs, manufacturing, and wholesale stages of production).
Now, if GDP is not a meaningful or valid measure of output, how could Skousen’s Gross Output (GO) be meaningful or valid? The answer is: it couldn’t, and Gross Output can only be meaningful, if we also accept the meaningful nature of GDP.
Without a measure of the value or volume of real output, most attempts by any type of economist (Austrians included) to analyse an economy collapse: for how could you know whether Keynesian stimulus or Austrian liquidationism have the effects allegedly claimed for them, without looking at real output in some aggregate form? How could you even know whether the economy is in a recession or an expansionary phase?
Robert Batemarco (1987) discusses Rothbard’s Gross Private Product, and on p. 183 gives a table of US GNP and Gross Private Product for the period 1947-1983.
Batemarco, R. 1987. “GNP, PPR, and the Standard of Living,” Review of Austrian Economics 1: 181-186.
Skousen, Mark. 1990. The Structure of Production, New York University Press, New York and London.
Skousen, Mark, 2001. “Beyond GDP: A Breakthrough in National Income Accounting,” Mskousen.com, April 1, 2001