Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

Additional Considerations on the Theory of the Business Cycle 419be explained in the following manner: contrary to the veryimplications of the term “gross,” which is added to the expression“National Product,” GNP is actually a net figure thatexcludes the value of all intermediate capital goods which duringthe measurement period become available as inputs for thenext stages of the productive structure. Hence gross nationalproduct figures exaggerate the importance of consumption 20business cycle. For example, in the most recent recession, realGDP declined 1–2 percent in the United States, even thoughthe recession was quite severe according to other measures(earnings, industrial production, employment). . . . A betterindicator of total economic activity is Gross Domestic Output(GDO), a statistic I have developed to measure spending in allstages of production, including intermediate stages. Accordingto my estimates, GDO declined at least 10–15 percent duringmost of the 1990–92 recession. (See “I Like Hayek: How IUse His Model as a Forecasting Tool,” presented at The MontPèlerin Society General Meeting, which took place in Cannes,France, September 25–30, 1994, manuscript awaiting publication,p. 12.)20 Most conventional economists, along with political authorities andcommentators on economic issues, tend to magnify the importance ofthe sector of consumer goods and services. This is primarily due to thefact that national income accounting measures tend to exaggerate theimportance of consumption over total income, since they exclude mostproducts manufactured in the intermediate stages of the productionprocess, thus representing consumption as the most important sectorof the economy. In modern economies this sector usually accounts for60 to 70 percent of the entire national income, while it does not normallyreach a third of the gross domestic output, if calculated in relation to thetotal spent in all stages of the productive structure. Moreover it is evidentthat Keynesian doctrines continue to strongly influence themethodology of the national income accounts as well as the statisticalprocedures used to collect the information necessary to prepare them.From a Keynesian standpoint, it is advantageous to magnify the role ofconsumption as an integral part of aggregate demand, thus centeringnational income accounting on this phenomenon, excluding from its calculationsthe portion of the gross domestic output which fails to fit wellinto Keynesian models and making no attempt to reflect the developmentof the different stages devoted to the production of intermediatecapital goods, which is much more volatile and difficult to predict thanconsumption. On these interesting topics see Skousen, The Structure of