Dear friends,
Many of you know about my singular contribution to economics, the development of gross output (GO), the new statistic that measures spending at all stages of production, including the supply chain. I call it the “top line” in national income accounting, and GDP the “bottom line.”
Good news! I received a surprise letter from Harvard economist Emma Rothschild, who is married to Amartyr Sen, the Nobel Prize winner. She has cited my work on GO in a footnote of her recent article “Where is Capital?” published in the journal “Capitalism: A Journal of History and Economics.” She said that her paper is “essentially an attempt to apply ideas about gross output to the economic history of the industrial revolution.” See her quote below.
It’s great to see how this broader measure is gaining traction among top economists.
Having experience in the business world, I’ve always found that treating “capital investment” as final capital goods only is incomplete, and we need to apply the businessman’s perspective — that business has to fund all capital expenditures, including the purchase of supplies in the supply chain, to move the production process along and make a profit. Hence the move toward a measure of total spending at all stages of production, or GO. As Sir John Hicks wrote in his book, “Capital and Time: A Neo-Austrian Theory” (1973), measuring GO is “the typical business man’s viewpoint, nowadays the accountant’s viewpoint, and in the old days the merchant’s viewpoint.” (p. 12)
Here is Prof. Rothschild’s perspective:
Where is Capital?
by Emma Rothschild
Capitalism: A Journal of History and Economics University of Pennsylvania Press
Volume 2, Number 2, Summer 2021 pp. 291-371 10.1353/cap.2021.0015
https://muse.jhu.edu/article/798746 (login required)
“The idea of gross output—or output to intermediate as well as final use—is of some ideological importance in contemporary economic policy. Gross output is seen as a measure of economic life that is business-centered, and that identifies businesses, rather than government or consumers, as the principal object of economic inquiry.143 But business is important, too, in our own inquiry into economic history. In our microscopic view of exchanges or transactions, there are multiple exchanges between one enterprise and another, and the exchanges embodied a substantial proportion of the technologies associated with new industries. A little over 40 percent of all output is sold to intermediate use in the contemporary United States, and the proportion was undoubtedly much smaller in the advanced economies of the late eighteenth century. It was relatively high, all the same, in the most modern industries, including those selling intermediate-type materials to the “final” demand of exports and government:
Footnote 143: The recent policy discussions are surveyed in writings by Mark Skousen, including https://mskousen.com/2020/10/macroeconomics-on-the-go-how-wall-street-economic-analysts-use -gross-output-go-2/; and see, on the importance of ‘B2B’ or business-to-business spending, ‘Business not Consumers Drives the Economy,’ https://mskousen.com/category/gross-output/.”
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