A History of national accounting

his article offers a summary of the book by Andr Vanoli, former senior statistician (directeur) at INSEE, entitled Une histoire de la comptabilit nationale (A history of national accounting [in French], Paris: La Dcouverte, 2002).* Because of the scale of the topic, the variety of methods and approaches, and the wealth of documentation, it was neither feasible nor desirable to aim at a comprehensive summary of such a book. Indeed, we have had to set aside some important aspectsan arbitrary process, as selections of this kind inevitably tend to be.1 We have also sought to go beyond a mere abstract by rearranging the different chapters around a few broad issues. Our presentation, therefore, does not strictly follow the books outline. This choice reflects the way in which the author of the article has read the book, interpreted it, and attempted to define its main contributions.
* To be published in English by IOS Press (Amsterdam) in February 2005.

To produce a history of national accounting is a bold wager, even if the result is but one history among several. In the afterword, written in the first person singular, Andr Vanoli explains the genesis and purpose of his endeavor. Vanolis book bears the stamp of his personality and professional career. This is reflected in the choice of topics addressed (a choice that is bound to come under scrutiny, given the works ambition), the emphasis on certain periods over others, and the links between the international setting and national experiences, between national-accounting concepts and economic theories, and between the construction of national accounts and statistical

systems. Vanoli became involved in preparing Frances national accounts in the 1950s, an activity that he later combined at INSEE with his duties as head of the Institutes statistical coordination and international relations. In sum, the author has played a key role in the evolution of French national accounting and in international discussions. Another aspectand not the least significantis that the author was also a protagonist of the story he tells us, at least during the last four decades of the twentieth century.2 In so doing, he takes sides, recounting the debates that led to a particular decision and the opposing views expressed in the decision-making process; in some cases, he disputes the positions eventually taken; and

he outlines scenarios for the future. From this standpoint, his narrative is also a committed history (histoire engage) in the best sense of the term.
1. In particular, we could not summarize all the aspects of the very substantial chapter 8 on the links between production, income, and wealth. Likewise, we have merely touched upon some key points in chapter 10. 2. He set up Frances National Council on Statistical Information (Conseil National de lInformation Statistique: CNIS). He was closely involved in the international harmonization of national-accounting systems, particularly the work leading to the 1970 ESA and the 1993 SNA/1995 ESAthe standard system in use today. Vanoli supervised the creation of national accounts in several countries including Colombia, Ecuador, Peru, Brazil, Tunisia, and Greece. Chairman of the International Association for Research in Income and Wealth (IARIW) from 1977 to 1979, he has headed the French National Accounting Association (Association de Comptabilit Nationale) since its founding in 1983.

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A first-rate manual of high educational value

Andr Vanoli has scored an impressive pedagogic achievement. For this, he has relied on his outstanding professional experience, at the national and international levels; on his incomparable knowledge of national-accounting systems, issues, and debates; and on his ability to show the connections between national accounting and the historical and institutional contexts, economic theory, and the advances in methods and tools of statistical observation. But the high caliber of this exposition would not be so significant without the authors remarkable teaching skills. These are conveyed in a lively, incisive style (the book is spirited, as the publishers blurb puts it), combining precision, simplicity, and rigor. These qualities are also rooted in the books architecture, which would be hard to overemphasize. The ten chapters are each composed of four building-blocks: The text itself, focused on the most critical points of the topic covered. Vanoli goes straight to essentials, without actually burdening the reader with technical argumentsalways plentiful in national accounting. A set of boxes (75 in all!). In the authors words: One of their main purposes is to make the book accessible to readers who have only some general ideas about national accounting or, conversely, to help them skip a more technical discussion. Are the boxes only for non-specialists? Far from it, in the opinion of the author of this article: so many boxes wonderfully illustrate the link between the high quality of the text and the authors expository skills. Also worth stressing are the boxes on terminology and vocabulary, in particular the one on the term real (p. 513). Such discussions are essential in a work of this kind. Outlook sections at the end of each chapter, combining conclusions and links to other topics. Let there be no misunderstanding, however: contrary to the clich, hurried readers will not be able to confine themselves to the outlooks, under pain of missing out on the books richness. The outlooks stimulate the reader to think about the issues. In a way, they invite the reader to identify the most salient points in each chapter, and to relate the content of a given chapter to the books other chapters. In sum, the outlooks foster truly active reading. Suggested reading, in lieu of a general bibliography. Vanoli explains the reasons for his choice in the introduction. He shows its advantages as well as its few drawbacks. The author of this article does not share his doubts. In fact, I greatly enjoyed reading these sections. For once, we are faced not with a litany of references, but a genuine extension of the main text. Ultimately, the suggested readings are another way of writing the chapters. I cannot urge readers too strongly to follow this advice, i.e., they should not skip the suggested reading sections under any circumstances. Last but not least, Andr Vanolis book contains two indexes: a name index and a subject index. The names are linked to the suggested readingsa valuable feature. Above all, the subject index is, in fact, the index of the books substance. It is thus an instrument for navigating and finding ones way around the volume, and for quickly identifying what topic is discussed, and how and where it is discussed.

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By comparison with other works on national accounting and its history, the contributions of Vanolis book are diverse. However, we can group them under four broad headings, which can serve as an interpretative framework for our reading: a long-run history, from the midseventeenth century to the beginning of our era; a world history but closely tied to national experiences and practices. International standardization has been conducted in parallel withand sometimes in opposition tothe nationalaccounting systems gradually introduced in different countries. At the same time, standardization relies on these experiences, enhances them, and alters them. a history in which the issues raised by national accountants are examined in their historical and political context. This approach is most evident in the discussions on the environment, on the relationship between national accounting and welfare, on the measurement of nonmarket activities, and on the assessment of wealth; a history of the relationships between national accounting and the changes in statistical systems and economic theories. He also showed the balance between national saving and investment, and described exchanges (exports and imports) with the rest of the world. Richard Stone describes this as a brilliant startand that is an understatement! Other endeavors in France (Vauban and Boisguilbert) and England (Petty) deserve mention as well. The eighteenth century did not see decisive progress. It even created a disturbance with the work of Franois Quesnay. Admittedly, Quesnay introduced a perceptive analysis of the economic circuit in terms of flows of goods and income distribution. But he confined the productive sector to those activities capable of generating a surplus, most notably agriculture. This choice was to weigh on the perception of net product (the equivalent of value added) and hence of national income in the following century. While the marginalist revolution severely challenged the approaches of Quesnay and Adam Smith, it did not have immediate consequences on the estimates of national income.

Lord John Maynard Keynes, 1883-1946

were, in a way, the forerunners of national accounting. The 1930s unquestionably marked a turning point, but its determinants were complex. In any event, it would be an unwarranted simplification to reduce these determinants to the impact however momentousof the work of John Maynard Keynes. Estimates of national income: King and others The starting point, therefore, was the series of attempts to estimate national income from the seventeenth century onward. These efforts, the work of isolated individuals, chiefly aimed to assess a countrys economic strength for comparative purposes or to provide a basis for tax reform. Gregory Kings work is exemplary in this respect. Not only did he propose a measure of national income for England, France, and Holland, but he compiled a series from 1688 to 1695, and extrapolated it to 1698. Also remarkable is the accounting framework that he developed for these estimates.3 In a way, King assessed national income in income terms and expenditure terms, while seeking to reconcile the two approaches. He compiled an income-expenditure account for government and private individuals, with a breakdown of personal final consumption into several products.

The 1930s break and Stones memorandum The Great Depression of 1929, the need for far more aggressive government intervention, and the emergence of macroeconomics from its Keynesian theoretical foundations changed the situation radically. This was especially the case in the United States and Britain, but also in the Scandinavian countries and the Netherlands; at this stage, France kept a very low profile. Vanoli does, however, show the complexity of the changes under way. On the one hand, the aim was to update the national-income estimates using a theoretical framework renovated by Keynesianism. The latter emphasized the links between the major aggregatesmainly income and its

A long-term history
This title may seem surprising, given that long-term history is an approach often linked to the emergence of Keynesianism in economic theory. Yet there is a long term in this history: the need to count what a nation produces, and to compare this measure with the values for other countries, was felt as early as the seventeenth century. Admittedly, such initiativeswhich governments did not always appreciatewere long promoted by private individuals. Moreover, these undertakings did not rely on a national-accounting system in the current sense of the term, nor did they seek to produce one. They

3. We refer here to the modern description by Phyllis Deane, the British historian of economics and national accounting (see Vanoli, pp. 26-27).

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On pages 22-23 of Vanolis book:

Box 2

A remarkable precursor: Gregory King

One account per social category Presentation slightly amended by Richard Stone, Nobel Memorial Lecture 1984 (p. 8) A scheme of the income & expence of the several families of England calculated for the year 1688

* Note: This column does not appear in the original. Source: G. E. Barnett (ed.), Two Tracts by Gregory King, Johns Hopkins Press, Baltimore, 1936, p. 31 (amended). Family is the equivalent of our household (including live-in domestic staff, hence the large number of persons per family in the upper social strata). The rows (from Temporall Lords to Vagrants) show the social stratification of late-seventeenth-century England. The last two lines (totals and averages) show the increase in wealth and decrease in wealth of the Kingdom. Note that the lower social strata reduce their wealth because they spend more than they earn. Stone indicates that the Totall expence column is not in Kings original.

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components, saving and consumptionand the savinginvestment equilibrium. The result was a highly condensed accounting framework. The US national accounts, in particular, were to be shaped by this approach for decades. On the other hand, some initial attempts were made to adapt to the national economy the accounting approach used by businesses, particularly in the US (first by Fisher, then by Copeland) and the Netherlands. This second approach did not, however, produce tangible results in the short run. Meanwhile, Wassily Leontief undertook important work on the detailed analysis of inter-industry relationships. The first major step was taken in 1945 with Richard Stones memorandum. This document was the first to propose a complete system of (institutional) sector accounts defined in functional terms: one sector for the finalconsumption function, another for production, and so on. Although the computation of aggregates remained a feature of the system, it was no longer its core component. The League of Nations4 meeting to which Stone submitted his memorandum opened a new phase in the history of national accounting: that of international standardization. While in no way denying its importance, Vanoli does not regard the memorandum as the first international recommendation in the area of national accounting. That was to come a few years later, with the standardized system of 1952. World standardization and European Community harmonization The 1950s and 1960s saw major advances in international standardization but also a series of national schisms, including the French system of national accounts. We shall return to this later. Because of the resulting tension, international harmonization was somewhat chaotic. An initial standardized system was created by OEEC (the clarifications in the definition and measurement of aggregates, with GDP (gross domestic product) as the dominant concept; and so on. As a system intended for world use, the 1968 SNA was ahead of its timea characteristic that actually fostered incomprehension and misunderstandings regarding its actual impact. The 1960s also saw the start of national-accounting harmonization in the European Community (EC) , resulting in a new international system of national accounts: the 1970 version of ESA (European System of Integrated Economic Accounts). While sometimes portrayed as the EC version of the 1968 SNA, ESA diverged from the latter on several crucial points. 6 This is due to its having been heavily influenced by the French experience in national accounting, Vanoli himself authored Proposals for a Community framework of national accounts in 1964. In return, ESA made a powerful contribution to the revision of the French accounts, leading to the SECN (Systme largi de Comptabilit Nationale: Enlarged System of National Accounting) in 1976. ESAs novelty with respect to SNA is also dueindeed, mainly dueto the intensity of the standardization that it implies. It is a far more stringent benchmark for the European countries than SNA at the world level. This feature was to become ever more pronounced as European integration deepened.

Sir John Richard Nicholas Stone, 1913-1991, Nobel Prize in Economics, 1984

ancestor of OECD)5 and the UN in the early 1950s: the 1952 version of the SNA (System of National Accounts). The system adopted some of the recommendations in Stones memorandum, but its main models were the conclusions of the 1945 meeting and the US national accounts compiled in the late 1940s (see below). There was an emphasis on computing the aggregates and breaking them down into broad items, but the institutional-sector accounts were skimpy. Model tables showed the decomposition of selected items, in particular net product (or net value added) by industry: this enhanced the accounting structurebut also complicated the new system. The SNA was thoroughly overhauled in the 1960s with the preparation of a second version: the 1968 SNA. After the Stone memorandum, the SNA revision was a crucial stage, and Vanoli clearly shows its impact and scope: an input-output analysis for products; a more comprehensivealbeit still inadequateapproach to sector accounts, with, in particular, the inclusion of financial transactions; valuations at constant prices; breakdown of value changes into volume changes and price changes; decisive advances in the valuation of transactions in goods and services;

4. Soon to be succeeded by the United Nations. 5. OEEC: Organization for European Economic Cooperation; OECD: Organization for Economic Cooperation and Development. 6. ESA is also a model of clarity by comparison with the 1968 SNA. Indeed, this has been one of the enduring characteristics of the European system by comparison with the world system. However, the 1993 SNA is substantially clearer than the earlier version and far richer than the 1995 ESA.

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From page 123 (in translation):

Box 16

General chronology of international harmonization

Year
1944 1945 19491950 1952 1963 1968 1970 1971 Tripartite meeting between the UK, the US, and Canada in Washington League of Nations meeting in Princeton; Stone memorandum (published 1947) Simplified OEEC system. Standardized OEEC system. United Nations SNA (first generation). Proposal for a concept of total consumption by the population, as a link between SNA and MPAS. United Nations SNA (second generation; prepared 1964-68). European Community ESA (prepared 1964-70). Basic principles of material balances system (MPAS), published by UN. Publication of French SECN (groundwork 1967, prepared 1970-75). French National Accounting System (Comptabilit Nationale Franaise: CNF) abandons independent system created in early 1950s. UN comparisons between SNA and System of balances of national economy (end of process begun twenty years earlier). Revised version of basic principles of material balances system (MPAS), published by UN. MPAS ceases to exist as alternative international system, despite a brief survival in a few economies. SNA (third generation) under the quintuple aegis of UN, IMF, World Bank, OECD, and European Community (prepared 1986-93). ESA (European System of Accounts) corresponding to 1993 SNA.

Refer to
Appendix chap. 3, pp. 173-74 Chap. 1, pp. 44-47; chap. 3, appendix, pp. 174-75 Chap. 3, p. 175 Chap. 2, pp. 72-78, 81-84 Chap. 3, p. 139 Chap. 3, pp. 124-33 and appendix, pp. 177-79 Chap. 3, pp. 134-37 and appendix, pp. 175-77, 179 Chap. 3, p. 139

1976

Chap. 3, pp. 139-40

1977 1989 1990 1993

Chap. 3, pp. 138-39 Chap. 3, p. 166 Chap. 3, p. 166 Chap. 3, pp. 142-47, 150-51, 154-65 and appendix, pp. 179-87 Chap. 3, pp. 142-47, 150-51, 154-65 and appendix, pp. 179-87

1995

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World Bank, and OECD. This important development has driven the convergence between SNA and other standardized statistical systems at the global level: balance of payments, public finances, monetary and financial statistics. a strong impact in several areas, such as: arrangements for compiling the accounts; some conceptual choices, particularly the treatment of general government but also insurance companies and financial institutions; the role of aggregates (less conspicuous than in the English-speaking countries); and the overall accounting structure. The approach was also responsible for a lack of interest in preparing accounts for the past. Second, the SEEF team was highly critical of international standardization as expressed in the first international system (1952 SNA and OEEC system): too general, too functional, too confused in its architecture and too fragmentary in its coverage, as Vanoli puts it. SEEF spelled out its view of the concepts and framework of national accounts in a memorandum by Claude Gruson published in 1950 and, more fully, in a document of September 1952 entitled Principles for the preparation of national accounts and an economic accounts table. The ambitious project, authored by Louis Blanc, Ren Mercier, and Charles Prou, marked a sharp break with the principles then prevailing at the international level: it took into account the flows of goods and servicesincluding inter-industry flows but also using as a basis the concept of an enterprise activity sector (secteur dactivit dentreprises: approximately, an industry); it introduced financial transactions; and it offered an overall summary in the form of an integrated economic accounts table. The document also stated the principle of recording transactions on an accrual basis, with a subdivision into transactions in goods and services, transfers, and financial transactions.

European Commission Media Library

World history and national experiences

The 1993 SNA: a universal system of national accounts The two key events in this history at the close of the twentieth century were the new SNA revision (1993 version) and the subsequent introduction of a new ESA (1995 version). Vanoli was one of the crucial players in this revision process. Beyond the technical aspects, his book underscores three vital points. First, the 1993 SNA/1995 ESA accounting structure has probably reached a plateau, subject to minor adjustments. By contrast, despite the fuller definition of the concepts of consumption and income, and the broadening of the concept of GFCF (gross fixed capital formation), some major problems are still inadequately addressed. The author makes the crucial observation that the main difficulties lie in (1) the connections between flows and assets, and (2) the relationships between past, present, and future involving, among other things, the concept of income. Second, the 1993 SNA marks the third basic stage in the international standardization process, after the standardized system of 1952 and the 1968 SNA/1970 ESA. The European system has become fully consistent with the world system and we can now characterize ESA as an EC variant of SNA. Moreover, SNA (and/or its ESA version) is becoming the norm in most countries: the national accounting system of the former socialist countries (Material Products Accounting System: MPAS) is gone, China adopted SNA in the early 1990s and, last but not least, the US is moving toward SNA. Third, the SNA is sustained not only by the UN but also by a set of other international organizations including the International Monetary Fund, the One of the chief contributions of Andr Vanolis book is his highlighting of the links between international standardization and the changes in national accounting in individual countries. Let us take three examples to illustrate this phenomenon: France, the US, and the socialist or ex-socialist countries. France: an independent course, but a strongly international impact France did not actually join in the post-1929-crash trend toward the development of national-accounting systems. Vanoli speaks of shoddy statistics and lack of official interest. Indeed, France had no nationalaccounting system at the end of World War II and did not attend the Princeton meeting at which the Stone memorandum was presented. The situation changed quickly in the late 1940s and especially with the creation of the Economic and Financial Studies Department (Service des tudes conomiques et Financires: SEEF) in 1950. This triggered an almost unprecedented expansion of French national accounting, which Vanoli analyzes in detail in chapters 2 and 10. Of this complex history, let us focus here on some selected aspects, in particular the connection between an initially independent approach and its later ability to exert a decisive influence on international standardization. French national accounting developed in the 1950s in two main directions. First, SEEF initially designed the tool for the primary purpose of compiling economic budgets, i.e., one or two-year general forecasts. This approach had

The 1960s were a momentous period for French national accounting. Three major base-year systems were introduced in succession from 1955 onward (base1952 in 1955, base-1956 in 1960, and base-1962 in 1969), each bringing remarkable advances in depth of coverage. By the end of the 1960s, the French national accounts possessed a structure unmatched

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in the world: an integrated economic accounts table; inputoutput tables at current prices, at year-earlier prices, and at set baseyear prices; supply-and-use tables by product for over 400 products; accounts of non-financial enterprises by industry; household accounts by socio-occupational category for selected years; and tables of financial transactions. Ultimately, the only missing components were wealth accounts and changes-inassets accounts. The 1960s also saw the vigorous expansion of the statistical base for national accounts, a phenomenon facilitated by the transfer to INSEE, in 1962, of the task of compiling historical accounts. The 1960s equally witnessed the beginning of the end of the French schism. This does not mean that the French gave up some of the conceptual choices dating back to the SEEF periodin particular, for the treatment of general-government accountsbut the preparation of the 1970 ESA did provide an opportunity for a forceful comeback on the international scene. The European system should not be viewed, however, as an EC version of the French system. In many areas, ESA admittedly followed the French national-accounting system (financial transactions, inclusion of the inputoutput table into the system, classification of transactions into three broad categories); but in other areas, particularly in the production sphere, it did not. This is because ESA had to take other experiences into account, especially the SNA revision (1968 SNA), whose importance we stressed earlier. The implementation of the SECN (base-year 1971) in 1976 ended the period of divergence between French national accounting and international standards, at least at the European Community level (ESA). In particular, the French accounts extended the coverage of output to services performed by general government (and non-profit institutions). Yet the SECN continued and redesigned the specific features (as against divergences) of the French accounts with respect to international systems: the integrated economic accounts table, which had not been incorporated into ESA; the inclusion of wealth accounts, with initial valuations; the establishment of satellite accounts; the concept of an intermediate system for enterprises; and so on. In Vanolis words, the SECN did not negate any of the achievements of French national accounting in the previous quarter-century, but now incorporated them into a standardized international framework and opened up new prospects for national accounting. These prospects materialized at the international level during the revision of the SNA for the 1993 version, which triggered the revision of ESA for its 1995 version. The 1993 SNA incorporated the wealth accounts, satellite accounts and analyses, and integrated economic accounts table, and evenalbeit less fullythe concept of intermediate system. The fact remains, however, that the deepening of the French accounts and of international standardizationalready under way at the time of the preparation of the 1970 ESAbecame far more intense. Indeed, the 1993 SNA, for the first time since the 1950s, went further than the French system in several areas. This unquestionably signaled a new era for national accounting. A final point is worth emphasizing in the light of Vanolis work. The gradual convergence and reciprocal enrichment of the national system and international standards exemplary in the case of Francedo not suffice as such to ensure the international comparability of the valuations derived from the national accounts. The comparison requires an even more complex process involving the statistical sources used, their processing, the consolidation and reconciliation methods applied in preparing the accounts, and so forth. On these issues, we cannot recommend too strongly a close reading of chapter 5 of Vanolis work. US accounts: distinctive concerns The United States was a leader in planning an accounting system for the national economy in the 1930s, even if these preparations had no immediate concrete effect. In particular, the Senate requested estimates of national income. This led to an official publication edited by Simon Kuznets in 1934 on national income from 1929 to 1932, with a breakdown by industry and income category. Additional estimates for final domestic expenditure items were prepared in the late 1930s. These efforts continued throughout the war years, with an emphasis on measuring gross national product (GNP)the US was the first to use the conceptand its components, in a context of surging military expenditures. The wartime period was also an opportunity to modify Kuznetss accounting structure. Two key changes were introduced. First, US accounts switched from a valuation of aggregates at factor cost (i.e., based on payments to factors) to a valuation at market prices. In practice, this meant that GNP now included, in addition to income in the form of corporate profits, interest, and compensation of employees, the taxes collected by general government (minus production subsidies to producers)in particular, taxes on production. Likewise, final consumption was

Simon Kuznets, 1901-1983, Nobel Prize in Economics, 1971

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calculated with the inclusion of (indirect) taxes on it. This change may seem a technicality. In fact, as Vanoli repeatedly shows, it was a momentous shift. Second, the US accounts were the first to introduce estimates at constant prices alongside those at current prices. They also included quarterly measures: The main elements of the future US system were now in place. The US system went through a decisive phase with the publication of the National Income and Products Accounts (NIPA) in 1947. The NIPA included six major tables: a GNP/national income table; consolidated accounts of businesses and general government; an account of flows with the Rest of the World (excluding financial transactions); a personal income and expenditure account (including non-profit institutions); and an account showing the relationship between national saving and investment.7 This arrangement is supplemented by a set of about fifty statistical tables, with some series going back to 1929. The NIPA powerfully influenced the first SNA version (1952) and the OEEC system. Apart from a few minor differences, the first version of the international system of national accounts closely resembled the US system. This situation was to change radically. US national accountants took little part in the revision that produced the 1968 SNA and they did not adopt the new system. Their basic accounting framework remained the 1947 NIPA, with some amendments. Surprisingly, whereas some US national accountants (e.g., Carol Carson) played an active role in the revision leading to the 1993 SNA, the earlier situation persists to this day. True, the US accounts are gradually adopting the recommendations of the 1993 SNA with quite a few difficulties, as Vanoli showsbut the established NIPA framework does not appear to have been challenged. This illustrates the traditional US resistance to the adoption of international standards, as, for example, in business accounting.

Actually, the US was following a novel approach to national accounting. First, it developed ad hoc systems outside the national accounts, for example concerning financial flows (the Feds flows-offunds), the input-output tables, and the wealth accounts. Although consistency was one of the goals, it was not a short-term priority. Second, there is a close link between national accounting and applied economics in the US. This characteristic has given rise to an American school of national accounting, as Vanoli shows in chapter 10. The schools key features include: continuity and backward extrapolation of series; emphasis on quarterly accounts; in-depth investigations of such areas as measuring growth and productivity, and the relationships between flows and assets; establishment of procedures for debate between institutions in charge of statistics production, methodological research, and applied research.

Karl Marx, 1818-1883

China, the system took the name of Material Products Accounting System (MPAS). However, MPAS did not remain totally cut off from international standardization. A comparative analysis with the SNA was performed under the UNs aegis, mainly aimed at compiling conversion tables between the aggregates of the two systems. National accountants of the socialist countries also took part in SNA revision talks in the 1960s, reflecting the clear dissatisfaction with MPAS in some of those countries. The socialist countries worked together in the Council for Mutual Economic Assistance (CMEA) and the UN published a version of the balances system in 1971. The crucial turning point came in the late 1980s. A new MPAS was submitted to the UN in 1989, with features to facilitate convergence with SNA; Hungary promoted the idea of a super-system that would

Nothing new in the East From the outset, national accounting in the socialist countries particularly the USSRmoved on a novel track. It relied on one of the interpretations of the theory of Karl Marx, namely, that which emphasized the link between productive labor and merchandise production. The socialist countries thus ignored the interpretation based on Book IV of Das Kapital (Theories on capital gains), which discussed the relationship of productive labor with capitalist production. The USSR used this theoretical approach to lay the groundwork for a national accounting system in the 1920s andafter three decades interruptionin the early 1950s. What emerged was a system of balances of the national economy: one balance covered supply and use of material products; another covered training and the primary distribution, redistribution, and use of national income. Adopted by the European socialist countries and

7. GNP (at market prices) is estimated using both the expenditure and income approaches. National income is also shown, but at factor cost. US national accountants therefore did separate the concepts of GNP and national income, but the difference was solely due to the valuation system. However, US national accountants noted a statistical discrepancy between the GNP measures obtained with the two approaches. The consolidated business income and product account was eliminated in 1958. There is no GFCF for general government.

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integrate MPAS and SNA; and attempts were made to present MPAS as a more suitable alternative to SNA for the developing countries. But by 1990 the case was closed: the European socialist countries dropped MPAS altogether in favor of SNA or ESA. China followed suit in 1992. vs. factor cost.8 Vanoli perfectly describes the choices made by some and the hesitations of others. As noted earlier, US national accountants quickly chose valuation at market prices as this method is directly linked to the price system that steers consumer choice. By contrast, British national accountants, following Sir Richard Stone and James Meade, long opted for a measure of national income/GNP at factor cost. As Vanoli puts it, There seems to be an underlying notion that value at factor cost is the true economic value and that the rest is a disruptive superstructure. The choice of factor cost also rested on some theoretical arguments advanced by Keynes. The debate was muddied by a disputable (and disputed) choice of words: rather than factor cost, it would be more appropriate to speak of factor income. The measurement issue was resolved with the preparation of the 1968 and 1993 SNAs. In the 1968 revision, Stone introduced the relevant concepts, in particular that of basic price, which he designated as approximate basic value. In short, the aggregatesfor output, income or expenditureshould be computed at market prices. By contrast, the measurement of value added by industries or sectors calls for a special treatment of indirect taxes. Those levied on products (such as value added tax and excise taxes) do not enter into producers value added, unlike other indirect taxes. A similar and symmetrical treatment must be performed on production subsidies, using the concept of subsidies on products.9 This is known as valuation at basic prices, which is, so to speak, halfway between the factor-cost and market-price measures. Vanoli elaborates on these points in chapter 6. We cannot recommend too highly a close reading of his discussion of this fundamental issue, so ably does he strike a balance between rigorous description and clear explanation of these very technical topics. However, in the background of the measurement issue, the real question was how to treat general government (the State) in the national accounts. The Great Depression of the 1930s illustrated an essential fact, namely, that government intervention had become indispensable for macroeconomic regulation, the market having shown worrisome limits. Events would clearly demonstrate that government activities were an integral and necessary part of the economys workingsand, even more so, of economic welfare. This conclusion was increasingly corroborated by the growth and diversification of government intervention. Given the intrinsic goal of national accounting, government therefore had to be incorporated into the process. But how should government activities be characterized, how should they be linked to market activities, and how should they be measured? The debate was complex, diverse, and long. Indeed, is arguably not over (far from it, some will say). Leading economists took part (Arthur Cecil Pigou, John Hicks, Simon Kuznets, Colin Clark) and the angles of approach were varied. There were questions about the nature of taxes: should they be treated as counterparts of a service output or as transfers? Subtle discussions took place over the distinction between direct taxes and indirect taxes. There was much talk about a possible double-count with market output if one accepted the notion of government output, valued at the sum of costs since there was no other possible method; participants then tried to identify the users of that output, as the government performs collective and individualized services; the question arose about invariance in the GDP measure given the governments alternative modes of intervention; and so on. In a parallel development, the accounting description of government activities and its integration into the overall system of accounts was subject to changes, hesitations, and alterations. In a sense, we could read the history of the different nationalaccounting systems through their approach to measuring non-market activities.

A history grappling with fundamental questions

What are the ultimate determinants of the history of national accounting? If we define the field as a quantitative technique for representing economic phenomena, we must indeed address this questionin the same way as, for example, it applies to business accounting. Although he does not tackle the question head on, Andr Vanoli does, in the end, offer a three-level answer in parts 4 and 5 of his book. The three levels are: (1) the basic issues that every historical context highlights at any given moment; (2) the needs of economic and social policy-making; (3) the changes in economic theory. These three levels are clearly interlinked. We have chosen three examples to illustrate why and how the basic issues tied to the historical context influence the history of national accounting: (1) the method used to interpret the connection between market output and non-market output; (2) the relationship between national accounting and welfare measurement; (3) the treatment of environmental phenomena. Market activities vs. non-market activities This issue arose with the very first estimates of national income, in particular through the debate over the valuation method: market prices

8. It will be recalled that the difference between the two measures hinges on indirect taxes, net of production subsidies to producers. 9. An example of subsidies on products was that of compensatory aid paid to farmers under the European Common Agricultural Policy (CAP) reform.

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Vanoli ably describes all these developments in chapter 6. He also does so by exposing his own conception, which we can illustrate with the following point. For him, given that a (non-market) output must be imputed to government, one of the cruxes of the problem is the breakdown of that output between users: Regrettably, no-one demonstrated that, in principle, individualized non-market services should be imputed to households (final consumption) or producers (intermediate consumption) on the basis of who would need to purchase them if they ceased to be supplied free by government and became market services. This sentence, which refers to the 1993 SNA, in itself largely sums up the problem. Applying its proposals would have important consequences, including for the measurement of GDP. National accounting and welfare measurement The relationship between national accounting and welfare measurement is an issue of considerable breadth with major potential effects. Vanoli devotes all of chapter 7 to it, and there are also some references in chapter 8. Let us survey the different aspects in order to arrive at an overall view. The debate was initially theoretical, particularly in the setting of the journal Economica, where it was launched by Hicks (1940). The central question was simple: in what conditions can we interpret the change in national income (over time) as a change in economic welfare? Microeconomic theory offers a reply based on consumer satisfaction: if the basket of goods and services consumed in t provides a higher satisfaction than in t-1, the change in consumption reflects a positive change in welfare. We can try to transpose the approach to the social level, but we will face major obstacles. It is not really possible, except with the aid of unrealistic assumptions, to define an interpretation of the change in final consumption (by volume)and a fortiori of total output (GNP or national income)in terms of the change in collective satisfaction.10 This difficulty, which was of a conceptual kind, did not deter all attempts to connect the nationalaccounting aggregates with welfare indicators. Different approaches were tried. One sought to adjust the measurement of the aggregates in a way that made greater allowance for the true final purposes of economic activities. Kuznets was the main promoter of this method: he contested the inclusion of certain expenditures in final consumption (for example, costs inflated by urban civilization, or occupational expenses); conversely, he challenged the exclusion of others, principally housework services. Other economists took up and enhanced Kuznetss approach, most notably in the US (William Nordhaus and James Tobin), with the same goal of adjusting the measure of final consumption. As a rule, these attempts did not have a concrete impact on national accounts.11 But they did highlight genuine problems in national accounting, such as the borderline between final expenditures, intermediate expenditures, and investment, or the treatment of housework services. The inclusion of these items would have required detailed studies beforehand to avoid the use of over-arbitrary conventions that would have created major difficulties in interpretation. One important factor in this context is human capital. If it were regarded as generating a specific asset that should be recorded in the wealth accounts, Vanoli clearly shows the substantial problems and momentous consequences that would result for the entire system. Another approach explored was the use of multiple indicators. Challenging the notion that a single monetary aggregate could express all the factors contributing to economic welfare, some statisticians and national accountants argued that multiple indicators were the only solution. The impulse came from politicians and social partners (i.e., employers and labor unions) in a context where the economic-growth model was being called into question by advocates of a more multidimensional and socially better balanced development model. The studies inspired by this movement have had a variety of repercussions, some ranging far beyond the frontiers of national accounting, others involving international organizations: for example, indicators were combined to prepare the Human Development Indicator (HDI) of the United Nations Development Program (UNDP). The verdict on all these efforts is mixed. Much ado about (nearly) nothing, one is tempted to conclude, despite the importance of the issues raised. But the debate rebounded when environmental concerns moved to the fore. The stakes were now so high that the problem could no longer be ignored. Taking environmental phenomena into account Vanoli devotes a large section of chapter 8 to environmental issues. This is probably, in fact, the densest and most challenging chapter of his book, as it tackles intangible investment, the concept of human capital, practical problems such as measuring consumption of fixed capital, the structure of changes-inassets accounts, and the effects on income and interest measurement. Admittedly, this makes heavy reading for someone without a firm grasp of national accounting. The environmental issues addressed in the chapter focus on the levies on natural resources. In this sense, it does not offer a comprehensive view of the environmental phenomena relevant to national accounting. This in no way detracts from the

10. Without going into details, we can mention the following point: the interpretation of the change in real national income in terms of welfare implies taking into account, one way or another, the distribution of that income and the change in that distribution. 11. However, we should mention the publication of estimates of Net National Welfare of Japan since 1973. But the indicator is prepared outside the national-accounting framework.

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Excerpt from subject index, p. 618, entry for Welfare [Bien-tre]

Welfare, economic welfare Welfare and NA [national accounts] search for a rigorous demonstration physical assessment bases? marginal/mean utilities cardinal utility and aggregation of consumer surpluses (Marshall, Pigou) Pigous analysis Hicks and the discussion in Economica ordinal utility tastes distribution of income - new welfare economics - utility possibilities frontier (Samuelson) - knowledge of distribution determines that of size (Graaff, Sen) - named goods (Sen) - value judgments search for a composite indicator final uses of economic activity (Kuznets) relationship between GDP and welfare measurement in SNA correcting NI [national income] or GDP? - Nordhaus and Tobin economic welfare measurement - consumption/investment reclassifications - additions - subtractions - Japanese Net National Welfare, q.v. - Danish Welfare Indicator, q.v. - household activities, q.v. - leisure, q.v. consumption of goods and services, and distinction between means and ends externalities, q.v. conclusion by national accountants optimal long-term growth models

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importance of Vanolis discussion, which is substantial in its own right. Natural resources are classified into two categories: marketable resources and non-marketable natural assets. (Natural) marketable resources are those whose extraction enters into a commercialization process. They can be non-renewable at the human scale (such as oil deposits and mineral resources) or renewable (such as timberland and fish-stocks). Non-renewable resources pose an initial problem, namely, the treatment of their extraction in the national accounts. Any industry selling products extracted from the resource simultaneously reduces the volume of an assetirreversibly, since the resource is non-renewable. Vanoli notes that the founders of national accounting (Kuznets, Stone) were aware of the problem but did not try to introduce consequent adjustments. Stone, for example, viewed resources as free gifts of nature and thus lacking intrinsic economic value. At the time, most people probably did not believe in the effective scarcity of natural resources at the world level. This vision is clearly obsolete. Nonrenewable resources unquestionably possess a high economic valuein the same way as land. The 1993 SNA recognizes this by explicitly including such resources in the wealth accounts as non-produced natural assets, recorded at the date of their discovery (exploitability). But we are left with the issue of their valuation, since non-renewable resources are very seldom bought and sold. The 1993 SNA uses a rent-based approach: the rent is the excess of the price of the extracted resource over total costs, including the return on invested capital, discounted over the entire exploitation period. While the principles that informed this choice are not in dispute, its implementation is quite arduous, particularly as regards the choice of discount rate, the computation of annual rates, and the determination of the extraction period. On these

Fish-stocks: a tradable, renewable resource

MAE / F. de la Mure

A small trawler returns to port (Brittany)

points, box 61 of Vanolis book deserves careful reading. A second category of issues concerns the recording of the extraction in the accounts. The 1993 SNA opts for a solution that, while representing an advance on earlier systems, is nevertheless a holding position. As a result of the inclusion of resources in the wealth accounts, the extraction is recorded in the other changes in asset volume account, one of the accounts describing the change in wealth between the start of the period and the end of the period. The non-committal aspect of this choice lies in the fact that the SNA proceeds as if the asset reduction were not the direct consequence of an economic activity. In other words, the negative change in wealth should be reflected in period savings. But how are we to translate such a consequence into accounting terms? Vanoli shows that two approaches are possible, one equating the asset reduction with consumption of fixed capital, the other treating it as the sale of a (nonproduced) asset. If actually applied, both solutions would have strong and rather diverging effects on the measures of output, value added, distributed income, aggregates (GDP/NDP12), and so on. Renewable resources warrant a different treatment, as there is no

asset reduction unless the extraction exceeds the natural growth of the resource. Such situations are described as net extractions. The problems are similar to those of nonrenewable resources, but even more complex, particularly when the rent disappears even as the extraction exceeds the renewal. The readers task is not over, though, as he or she must then tackle the case of non-marketable natural assets (air, water, etc.). In practice, the aim is not to measure these assets in monetary termsan unattainable goalbut to determine the damages caused by the economic activity either to agents or to the quality or functions of the assets as such. The recording of these damages raises very difficult problems, particularly as regards the valuation method. There is also the problem of adjusting the aggregates (the notorious green GDP, to use an infelicitous phrase): the damages should be assessedsome economists arguenot only on physical criteria but also on monetary ones. As Vanoli emphasizes, this implies stretching the frontier of monetarization almost to infinity, and it claims to endow the measure of GDP/NDP with a significance in

12. NDP: net domestic product, equal to GDP minus fixed capital consumption. This is the aggregate that should take precedence.

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terms of welfare.13 sustainability and In the 1950s, and even more so in the 1960s, there developed an awareness of the importance of the relationship between the reliability or quality of the valuations and the strengthening of the statistical system. The French example, mentioned earlier, clearly illustrates this process. Vanoli shows the twoway relationship that developed. That French national accounting was a powerful factor in the development of the statistical system in many areas is an acknowledged fact. However, as Vanoli writes, remarkably, this development was not confinedas some initially fearedto the narrow task of feeding the national accounts. Vanoli cites the household sample surveys in a context where the issue of sharing the fruits of growth loomed large. We might also mention the business world, with the introduction of annual enterprise surveys and, later, the unified system of enterprise statistics (Systme Unifi pour les Statistiques dEntreprises: SUSE). That this apparatus should have proved essential to the national accounts in no way diminishes the fact that it simultaneously laid the basis for an independent expansion of business statistics. to draw on the largest possible data set. In this sense, the fact that a unified directory of enterprises and local units was set up by the early 1970s is not unrelated to the characteristics of French national accounting. The same factors help to explain French national accountants desire to intervene in discussions on issues such as the accounting standards followed by economic agents (not only businesses), the revision of classifications of activities and products, and the definition of statistical units.14

National accounting, statistics, and economic theori(es)

Andr Vanoli discusses at great length the relationship between national accountingexamined in a historical contextand statistics and economic theory. Chapters 5, 9, and 10, in particular, deal with these issues. The material offered is very rich: Vanoli covers a vast range of topics and approaches. We have chosen three examples here: (1) the questions on the reliability of national accounts, (2) the problems of measuring volume and price changes, and (3) the relationships with economic theory amid the crisis in macroeconomic regulation. Questions on the reliability of national accounts The need to assessand, even more so, to measurethe reliability of national accounts is a relatively recent concern. Simon Kuznets was a pioneer with his estimates of US national income between the wars. We should also mention Paul Studenski, who, in 1958, published an encyclopedic work on nationalincome estimates since the seventeenth century and on the methods used in different countries. Studenskis book, which Vanoli considers unmatched, classifies countries into three groups by reliability (high, medium or low).

13. The treatment of environmental phenomena in national accounting is covered in a (provisional) UN manual entitled System of Environmental and Economic Accounting (SEEA). Presented as a satellite analysis, the SEEA is a remarkable and highly ambitious conceptual construct. It has also sparked many controversies, which are far from settled. A heavily revised version is nearing completion. 14. The example of French satellite accounts also deserves mention here, as an illustration of a vision of national accounting as a vector in the quest for consistency in statistical information on a given area (specific economic activity, field of application of economic and social policy, etc.).

True, the relationship between national accounting and the growth of statistics displays a different intensity from one country to another, as well as sometimes different configurations. First, some countries (in particular the US and UK) have a strong statistical base that is ahead of their national accounting. The momentum provided by the latter is far weaker than in countries like France, where the situation is arguably the opposite. Second, the priorities defined for the national accounts are not without consequences on the statistical system. For example, the importance attached in France to consistency requirements in national accounting extends to the notion that statistics should play its part in reconciling information. This is far from being the case in other countries, where the primary emphasis is on the capacity

The issue of the reliability of national accounts is not confined to the linkage with the statistical system. It also concerns the preparation of the accounts themselves. Vanoli analyzes three key aspects: (1) the multiple approaches to summarizing and reconciling measured values, particularly those of transactions in goods and services; (2) problems raised by the dichotomy between the real sphere and the financial sphere (the adjustment); (3) the greater attention now devoted to measuring levels (as against rates of change), notably in the international setting. These aspects highlight: the complexity of the problems raised by the reliability of national accounts; the fact that there is no model intrinsically more efficient than the rest, even though some notions are gaining acceptance as the norm (for example, the importance of incorporating a high-quality inputoutput table into the nationalaccounting system); the difficulties created by the reliability requirement for measuring levels and, more specifically, rates of change (in particular, the valuation of the underground or informal economy); the implications of the emergence of a more complex economy, for example in the financial sector; and so on. All this calls for (1) greater statistical efforts, especially as other systems besides the national accounts are affected (most notably, the balance of payments), and (2) renewed attention by economists to measurement issues and the interaction with economic theory.

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Volume changes and price changes: vital stakes

Chapter 9 addresses the problems raised by the decomposition of the value of a flow into its volume change and its price change. The chapter is very comprehensive but also fairly complex, at least in some sections. To illustrate the richness of Vanolis analysis, our discussion focuses on a single point: the volume-price breakdown for capital goods (producer durables).15

The volume-price breakdown of capital-goods output and GFCF raises delicate problems both as regards statistics on producer prices and the preparation of accounts at constant prices. Most of these problems concern the method for measuring quality changes, which are very important, for example, in information technology. Quality changes need to be incorporated into the volume change. Should they be estimated from the producers standpoint or the users standpoint? An initial discussion took place among US economists specializing in productivity measurement and growth accounting (Edward Denison, Dale Jorgenson, Robert Gordon, Zvi Griliches, Jack Triplet, and others) and a consensus emerged that the quality changes to be included in the volume change should be equated with the change in the goods performance. In this sense, the volume of capital goods should change in step with their productivity. This debate impacted the nationalaccount valuations. Hardly surprisingly (see earlier section: US accounts: novel concerns), the US accounts paved the way: in the mid1980s, the method for calculating computer output volume was amended to conform with the theoretical recommendation. Other national systems followed, including the French accounts. This required theoretical adjustmentshedonic methods, pairing methodsto allow for the practical impossibility of simultaneously measuring all the factors affecting changes in performance.

From that starting point, Vanoli offers an extremely interesting analysis. He stresses that this reconsideration of the volume-price decomposition for investment illustrates the contribution of cooperation between economists, statisticians, and national accountants. He then assesses the impact of the shift, which poses formidable interpretation problems. In particular, the improvement in performance for the producing branches is counted as a change in their output volume,

resulting in an increase in GDP volume. Meanwhile, the user branches, too, record an increase in output volume, whose counterpart is an increasevia GFCF in capital goodsin the volume of fixed capital

15. Chapter 9 deals with nearly all the issues pertaining to volume changes versus price changes. In particular, Vanoli discusses: (1) valuations at fixed prices vs. at previousyear prices, (2) the determination of value added in volume terms, and (3) international price and volume comparisons, in particular on a purchasing power parity (PPP) basis.

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used by the branches. However, this increase in the volume of inputs in fixed-capital form does not lower the GDP level, since it is measured before the deduction of consumption of fixed capital. The new approach thus sets up a potential bias in the measurement of growth via GDP.16 All this calls for substantial analysis, in particular on the measurement of fixed capital and fixed-capital consumption, especially as the phenomenon prevailing in the computer world is accelerating and widening as technical progress gains momentum (cf., in particular, automobiles). As Vanoli notes, a partial renewal of economic history is at stake. National accounting and economic theory In a way, the issue of the relationship between national accounting and economic theory informs much of Vanolis book. Changes in economic theory are indeed one of the drivers of the history of national accounting, even if the connection often works through indirect channels. We cannot help being impressed by the list of eminent economists who, in one way or another, have taken part in the discussions and controversies over national-accounting issues: this record is all the more remarkable as it stands in sharp contrast to the present situation. Parts 4 and 5 of the book are those that deal most directly with the links to economic theory, but using different approaches. In part 4, the relationships center on the analysis of fundamental issues common to national accounting and economic theory, such as: definition and measurement of welfare at the macroeconomic level; connection between output, income, and wealth; concept of income, concept of volume and prices; and nationalaccounting practices. Some specific aspects of these issues were discussed earlier. In part 5 (Policy), Vanoli adopts a different point of view by setting the history of national accounting in a more institutional or more political framework. The relationships with economic theory are consequently perceived as relationships with economic theories, insofar as they are a factorin combination with others affecting the changes in the status and uses of national accounting. The take-off of national accounting is customarily situated at the convergence between the Great Depression of the 1930s, the ensuing rise in macroeconomic regulation policies, and Keynesian theory, which established their theoretical foundations. These developments unquestionably played a role, but Vanoli rightly reminds us of Don Patinkins assessment of the interaction between a statistical revolution in the measurement of national income (Kuznets and Clark) and the Keynesian revolution at the theoretical level. In this sense, while Keynes broadened and formalized the framework for measuring aggregates and defining their relationships, the goal of quantifying macroeconomic variables preceded him. Until the 1970s, therefore, the relationship between economic theories and national accounting centered on the object to be measured. In sum, the theories suggested which aggregates should be measured; the accounts supplied the data that, in exchange, allowed testing for historical relevance. Theoretical developments, in turn, may induce change in the accounting system. Sir Richard Stone, for example, drove the implications of this relationship very far. Gradually, however, it has been challenged although, as Vanoli shows, the process has been shaped by complex determinants. The initial transformations were due to the first oil crisis (macroeconomic regulation crisis), with the increased demand for short-term data but especially the challenge to the relevance of the medium-term forecast andbeyond thatthe national-accounting framework on which it rests. Then came the emergence of a set of phenomena that posed or revived questions appropriated by economic theory but seen as stumbling blocks for national accounting: the financialization and globalization of the economy, the quickening of technical progress, the boom in information and communication technologies, environmental issues, and so on. The third determinant was the growing importance of the micro sphere, in its different aspects, which resulted in the ascendancy of microeconomics on the theoretical side, with data requirements largely at right angles to what national accounting could provide. The reader should look, in particular, at Vanolis discussion on (1) economists greater reliance on panel-data bases and (2) the needs created by computable generalequilibrium models. Vanoli ends his work with a reference to the tensions over the relationships between economic theory and national accounting.17 He calls for a fresh and balanced approach to these relationships. The best we can do is to quote him: A third, less comfortable approach [N.B. by contrast to the empirical approach on the one hand and the theoretical approach on the other] views an all-empirical attitude as inadequate, particularly with regard to the concept of income, believes that national-accounting concepts and aggregates have theoretical bases, but asserts that the conceptual construction of the national accounts involves some factors that are unrelated to theories (or, for that matter, to business accounting).

16. This bias is an argument for using the concept of NDP (net domestic product) since the aggregate is measured after deduction of fixed-capital consumption. In the situation discussed here, the increase in input volume (consumption of fixed capital consisting of capital goods) would effectively reduce the NDP level. 17. The issue of the tensions between economic theories and national accounting is ultimately just a narrow aspect of a broader question, i.e., the tensions between economic theories, the framework for analyzing economic phenomena, and observation. Vanoli devotes a large final portion of chapter 10 to this question.

Pierre Muller Head of INSEE Regional Office Pays de la Loire

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