The System of National Accounts
Richard Stone is regarded as the father of the United Nations’ (UN) SNA that has become the basis for national accounting across the world today. It was for this contribution that he was awarded the Nobel Prize in Economics in 1984. His outstanding and path-breaking work was made possible in part by his personal characteristics. He was reluctant to be drawn into economic debate and controversy, preferring to devote himself to open up new areas of enquiry, especially on the boundaries between economic theory and data, making him ideally suited to international collaboration and the essential development of consensus. He was meticulous in his scholarship; he had a systematic logical theory underlying accounting for the national economy; he read widely; he had a gift for writing clear, cogent, and easily understandable English. In addition, he had worked with Keynes, the most famous economist in the world at the time, he developed an extensive network of economists interested in measurement, and he was prepared to lead by example, preparing drafts for discussion, obeying the rules, and achieving agreement.
The international acceptance of the concepts, classifications, and accounting rules in the 20 years after the war was closely related to the Keynesian understanding of how the economy operates. This was the golden age for Keynesian policy. The accounts laid the basis for government intervention to achieve full employment, with the linking of public spending, industry, and private consumers and the distinction between investment and consumption. The adoption of standards across countries allowed for the development of international models and the calculation of cross-border macroeconomic effects. With the National Accounts, those who argue against Say’s Law, that supply creates its own demand, have a quantitative basis for assessing the potential loss in marketed resources after a financial crash and the fiscal stimulus necessary to prevent a downturn or depression.
Ward (2004: 72-83) documents the development of the UN’s accounts and the role of Stone and the CGP. The ideas and theory originated in the work by Stone and James Meade on the UK accounts during the Second World War [8, 16]. It was continued by Stone in a paper on the National Accounts for the League of Nations written in 1945 and subsequently adopted by the UN in 1947 [24]. Stone can be seen as the pioneer of systematic aggregation in the national accounts. Transactions are treated as in double-entry accounting, made explicit from both sides of a transaction. The purchase by a consumer is also the sale by the retailer; the wage received by the worker is also the payment made by the employer. Here we find Stone’s distinctive contributions. National income is explicitly shown as being derived by different combinations of elementary transactions. The interdependencies between groups of transactions are made clear [26]. Instead of single estimates, a framework for social accounting is provided. Also, institutional sectors are distinguished and defined. Unifying principles are proposed concerning the invariance of concepts such as national income to different aggregations in the underlying accounts [30]. For example, the Material Products System as developed and used by the Soviet Union had a gross estimation of material production, which changed depending on the vertical integration of production, whereas the SNA has a net concept of production that excludes intermediate production and so it is invariant to industrial integration. Stone went on to chair several UN committees developing the accounts, culminating in the 1968 UN’s SNA.
Leif Johansen (1985: 6-13)[1] has the most comprehensive description and review of Stone’s contributions to national accounting. He emphasises that ‘from the outset, Richard Stone clearly perceived accounts systems in the context of a more abstract and general “model.” He did not choose his concepts, classifications, relations and propositions in a routine manner, on the basis of generally accepted accounting methods’ (ibid.: 7). In other words, Stone regarded the national accounts as the fundamental data set required to build and estimate an economic model, rather than as a set of accounts following rules more suitable for managing and auditing a commercial company or government institution. He recognised the importance of sampling [41], the reconciliation of the inevitable discrepancies between different measures of key variables such as GDP [10], and the need for repeated revisions to past estimates of the accounts as new data or methods became available.
- [1] Johansen can be considered as the first to have developed a general equilibrium model in his PhD thesispartly written whilst he was visiting Cambridge in 1959.
